Diversification of Islamic Financial Insturments
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through equity participation in the form of public-private partnership. Instead of issuing a
debt-based bond to mobilize funding, governments can use equity/musharaka participation
Sukuk/securities for such funding. These instruments can be issued in low denominations and
traded in the secondary markets. This would allow ordinary consumers and investors to
participate in the process of owning a share of their government’s activities. These
instruments, with the incentive for wide participation of the population, could well enhance
social solidarity and, perhaps, even provide an incentive structure for strengthened
governance. However, in order to materialize the recommendations operational constraints,
have to be addressed. The following section reveals some important constraints:
3.7.6 INDUSTRY CONSTRAINTS
• First is the challenge is lack of a level playing field between Islamic and conventional
finance. There is an edifice of structural, institutional, administrative, fiscal, monetary
and legal means favoring debt finance.
• Second, IFI lacks long term, low risk/Shariah compliant liquid instruments/product
development. This imposes liquidity and hedging constraint on the ability of IFI to
compete. As a result, Islamic financial industry is forced to replicate conventional
instruments.
• Third, IFI has done remarkably well in expanding its global reach but it has had to do
so in legal jurisdictions uninformed about or hostile to Islamic contracts. These are few
among a number of challenges facing IFI. The question of long-term sustainability
becomes crucial.
• Fourth, being a closed economy that is tending to open, greater structural reforms are
still needed to improve the business environment. Bureaucracy and cumbersome
regulations hinder entrepreneurial activity, and state-owned enterprises distort the
economy. Consequently, according to Global Economic Freedom Index, 2017 105. Oman
is ranked 82 in the world based with an overall score of 62.1. This rather appears an
offshoot of the conservative natured overall social fabric of Oman, also a distinguishing
feature of country’s social stability. The same could be reasoned as reflected also in the
limited range of product line in Islamic Banking.
Consequently, to implement the recommended new age brand of Islamic finance and to reap
the desired economic benefits, the above constraints need to be addressed via a cohesive and
institutional strategy as national priority. For these reason, a well-developed and a vibrant
stock market particularly the one based on the above characteristics, should increase saving
and efficiently allocate capital to productive investments, which leads to an increase in the rate
of economic growth. Mirakhor et al. (2015: 29, 2011a: 20) give conditions for a vibrant and
robust stock market; arguing that these steps may help reduce cost of market participation,
increase market credibility and reduce reliance on debt. The list includes inter alia;
 Policies to create a level playing field for equities like products to compete fairly with
debt-based instruments; this means removing all legal, administrative, economic,
105 See Accessed on 28th April, 2017 at 21:29PM