Prospects and challenges of Islamic Banking Oman Economic Forum 18 March 2014 Dr. Jamil El Jaroudi

Country Banking Sector Performance 2  Financing after robust growth in 2012 reduced to single digit in 2013  2014 outlook remains positive for growth in financing as major projects start 1 – CBO Monthly Publication December 2013 – 14% 6%

Country Banking Sector Performance 3  Growth in deposits outpaced growth in credit resulting in increased liquidity  Core capital growth continued to be in double digit ensuring sector capital adequacy ratios remained healthy 1 – CBO Monthly Publication December 2013 – 13% 10% 18% 11%

Country Islamic Banking Sector Performance 4  Growth in financing using Islamic modes has outpaced the growth in deposits.  The modest share in the first year of operations is an achievement as innovators have tested the waters and 2015 will see acceptance across the masses. Published financial statements –

Country Banking Sector Prospects 5 Prospects for Islamic finance are very bright  Clear appetite and desire for Shari’a compliant finance  Policy development  Vision and Leadership shown  Pertinent and effective change to Banking Act  Comprehensive set of regulations for Islamic banking  Country level Shari’a Board at CBO (first in GCC)  Positive response from Industry  6 Islamic Banking windows  2 Fully fledged Islamic Banks  2 Takaful companies – one more planned  First Shari’a complaint Sukuk issued in 2013  Performance of Islamic Banking in 2013  Leading Indicators: Customer acquisition, Branch network, Product development  Lagging Indicators: financial results of the Islamic banking Industry

Country Banking Sector Prospects cont. 6  Financing is forecasted to grow at a cumulative aggregate growth rate of 7%  The sector is forecasted to remain liquid with deposits increasing at a CAGR of 7% Source: Business Monitor International

Challenges Facing Islamic Banking 7 Instruments for Liquidity Management Harmonization of Shari’a standards and Product development Awareness and Education Geographical coverage Fine-tuning of policies and rules to better align with nature of Islamic banking Advantage for window’s vis-à-vis full-fledged Islamic banks (e.g. Parents’ net- worth) Legal system in terms of defaults and Takaful claims have not been tested

8 “Thank You”