Oman coastline at dusk
Oman has issued a decree permitting Islamic banking

The global Islamic finance market has grown to nearly $1 trillion. Islamic banking products have proven very popular not only in the Muslim world, but in Europe and, increasingly, even in the USA.

Unlike many neighboring Muslim nations, Oman has remained firmly secular in its financial and banking industries. The head of its central bank commented in 2007 that “banks should be universal”, which was seen as code for “traditionally Western” or “non-Islamic”. However, Oman is a nation of 3 million Muslims, many of whom are quite conservative in their faith.

These religious Muslims have been increasingly demanding Islamic banking services in Oman. Some want to buy homes, some want loans to build homes or start businesses, and for religious reasons they do not want to take interest-bearing loans. Islamic Shari’ah rules forbid the taking or payment of interest.

Ali al-Sulaimi is one such. Employed as a clerk, he wants to build a home, but refuses to deal in ribaa. Dressed in a traditional white dishdasha robe and skullcap, he spoke on this subject on his way to prayers at the Sultan Qaboos Grand Mosque in the capital Muscat.

Islamic banks “should open today already”, Sulaimi said.

Soon, he may get his wish. In May of 2011, Oman’s central bank issued a ruling saying that Oman must begin setting up Islamic banking alternatives.

The sultanate’s decision to allow Islamic banking in Oman may be a concession to religious Omanis, or more likely is a recognition of the money they are losing, as they watch investment dollars flow to Islamic banks in neighboring countries.

It will take several years to properly develop an Islamic banking industry in Oman. However, the banks appear eager to get started.

“There is a lot of opportunity for Islamic finance in Oman, with almost every bank considering launching an Islamic window and one or two full-fledged Islamic banks being launched,” said Ashar Nazim, leader for Islamic financial services in the Middle East and North Africa at consultancy Ernst & Young.

“Islamic banking could be 8 to 10 percent of (banking) market share over the next three to five years. I’m comfortable with saying it could be at least a $6 billion industry in Oman.”