It has been exactly a year since Oman’s leader Sultan Qaboos approved Islamic finance in the Sultanate. Banks have been quick to enter to offer Islamic financial services but there is still a lot to do. We sit with Azmat Rafique, to discuss his own journey and the prospects of Islamic finance in Oman.
You have worked in Pakistan, Bahrain and Qatar before moving to Oman. Tell us what made you leave your previous job in Qatar and move to Oman, which is just starting Islamic banking and is indeed a very new player in the Islamic banking market.
The very fact that Oman is starting Islamic banking was enticing enough. In terms of Islamic banking and finance, Oman is a blank canvas. Entrants into the market have an opportunity to create a unique model, which takes into account any systematic weaknesses of other jurisdictions and tackles them. To mould and manage, create and execute accordingly makes this new position exciting and dynamic. For me, it is undoubtedly a remarkable growth opportunity for my career and one that I would have been foolish to refuse. After working in established Islamic banking markets in Pakistan, Bahrain and Qatar, I gained a comprehensive and valuable understanding of Islamic banking products and systems. Oman Arab Bank has offered
me the opportunity to use both my banking and Islamic finance consultancy experience for establishing an Islamic banking window. I am really excited to assist the bank in offering the best Islamic banking products and services to Omani customers.
As Head of Islamic Banking at Oman Arab Bank, which has yet to offer Islamic banking products, what challenges are you facing in terms of product development, IT, accounts, training and marketing?
Product development for a new market is a sensitive and risky business. We are gradually understanding the dynamics of the demand of Omani customers and carefully choosing product structures which can be tailored according to local needs.
Supporting IT solutions is equally important but we have the benefit of choosing from well-developed and established IT systems in the market and are confident that this challenge will be met comfortably. Similarly, the Central Bank of
Oman’s decision to follow AAOIFI Accounting and Auditing Standards has given us a good starting point. Our team is well-versed in this area and so we do not see any major difficulty in implementing the Standards.
We have a well-structured training program for our Islamic banking team and may use a mix of internal and external resources to implement this. Though we have not started any marketing so far, we have already conceived a structured marketing plan that will enable us to reach out to our customers in Oman.
This is the first time that Oman will witness a faith-based commercial offering and so mindfulness of local sensitivities and religious values is a paramount requirement for success. The majority of Omanis are from the Ibadi sect, founded by Jabir ibn Zaid al-‘Azdi, which is different from sects followed in other countries of the GCC. I highlight this point as modern-day Islamic finance is very much driven by the Sunnis, though ground-breaking works by Shia thinkers – the most prominent being Baqir Al Sadr – has also played a part in the evolution and continuation of the industry. Nevertheless, by being from a different sect with different legal conceptualisations, it would be irresponsible to ignore their laws, culture and understandings of muamalat. We have to be aware of certain sensitivities of the grassroots in order for us to offer the right product suite.
Why did you choose to do Islamic banking as a career? Do you not think that there still are greater opportunities for building a successful career in conventional banking?
My personal inclination towards Islamic banking is faith-based. I left a successful career path in conventional banking when Islamic banking became available in Pakistan. However, I do not think I suffered in terms of my career growth. Islamic banking has given me equally good career growth opportunities.
What are the benefits of having an Islamic window as part of a conventional bank, as compared to having a fully-fledged Islamic bank? Do you think an Islamic window model is more appropriate for the Omani market at this early stage of the development of Islamic banking in the country?
There are definite advantages of the Islamic window model, especially in a market such as Oman which has only recently introduced Islamic finance. An established bank, from which the window will stem, has the significant advantage of already knowing and functioning in the market. The bank will have its own customer base with cross-sale opportunities. In addition to marketing Islamic banking to new customers, the bank can target its own customer pool, offering and marketing a new range of products. One cannot underestimate customer loyalty and if the bank has developed sizable goodwill, the Islamic window will attract existing customers who have a preference for Islamic finance but previously did not have access to it. In addition, the bank can also leverage on its existing brand image. Even those who are not the banks’ customers will know of the bank. To some extent, the bank can rely on its existing setup. The bank understands the regulator, their requirements and their idiosyncrasies. They have a greater understanding of what happens behind closed doors and the behaviour of policymakers. It puts them in a better position than someone new in the market.
At the same time, a fully-fledged Islamic bank has several advantages over Islamic Windows. They do not face any issue of image conflict, no legacy and potential rift within the organisation, and a focus strategy to offer specialised products.
For the Omani market, the window model seems more appropriate due to the factors that I just mentioned. In Oman, Islamic banking windows will also benefit from the Central Bank’s decision to maintain transparency and ensure the segregation between Islamic and conventional operations. This will allow Islamic banking windows to enjoy the benefits of being a new vehicle and will help them benefit from the profile, tenure and liquidity of the conventional bank.
Islamic banking in the GCC is ready to ascend to the next level of maturity. Competition and an enabling environment will steer banks towards adopting technologically advanced solutions. I believe the Islamic banking sector in Oman will take 3-4 years before it achieves a respectful size. The country will definitely attract regional investors who are willing to channel funds into Shari’a-compliant investments.
Where would you like to see Oman Arab Bank’s Islamic banking operations in the next five years?
Oman Arab Bank enjoys a legacy of stability and sound banking practices. We definitely want to grow and enjoy a prominent position in Oman’s Islamic banking market; however, we will ensure that we continue our legacy of prudent banking practices. Our vision is to make our Islamic banking offering a leading brand in Oman. There is still a long way to go with regard to Islamic banking and finance in Oman. It was only in the last year that permission was granted, but this did not mean a change in regulations and an analysis of laws which would pose efficiency problems for Islamic banks. The Central Bank is still quite cautious with Islamic banking and is effectively adopting a ‘wait and see’ approach. It’s early days for Islamic finance in the country and just like in Malaysia and UAE, success will ultimately depend on the efforts made by policymakers and regulators in Oman.
Who amongst the contemporary personalities has influenced or impressed and is applicable to the social, political and economic problems of the modern day? Dr Yunus is an extraordinary individual. His microcredit/Grameen concept has revolutionised approaches to tackling poverty. The poor were no longer considered as those who were incapable of helping themselves, but rather they were humanised as contributors to society. His story is quite inspirational.
What do you see in terms of the future of Islamic banking in the GCC and where would you place Oman on the regional map?
In my view, Islamic banking in the GCC is ready to ascend to the next level of maturity. Competition and an enabling environment will steer banks towards adopting technologically advanced solutions. We may also see new versions of existing products that are tailored to niche markets. Service quality as compared to leading international brands of conventional banks certainly requires attention. Islamic banks are aware of this and we may witness improvement in this area. At a macroeconomic level, the industry will continue its remarkable greatest challenge facing the global Islamic financial services industry.
People talk about standardisation, trained human resources, Shari’a compliance, and product innovation. These are essential factors for the growth of the industry but in my view, at present, the greatest challenge is to offer a world-class service similar to what recognised international brands offer to their customers. It all boils down to customers’ experience: if they are not happy with what we offer to them, we have not met our ultimate objective.
How is life in Muscat? How would you compare it with Bahrain and Doha?
Muscat is an amazingly beautiful place in the monotone landscape of the GCC, populated by friendly and culturally rich people. The place has a significant history that has played a key role in shaping the social psychology of its people. Centuries of cultural and economic interaction have made Muscat a very hospitable place for expats. This is the only place in the GCC where you find many locals fluently speaking Urdu or Hindi. The Islamic banking sector is really enjoying our stay in Muscat.
I cannot point out a single personality but Dr Mahathir Mohamad, Recep Tayyip Erdoğan, and Dr. Muhammad Yunus are among the contemporary personalities I highly regard. Mahathir and Tayyip have been quite remarkable Muslim leaders. They worked off a platform that respected the Islamic identity and tradition and showed that there are ideas and tools in Islamic heritage and law that can meet the challenges of modern life. In many ways, they showed that Islam is not anachronistic
I believe Oman will take 3-4 years before it achieves a respectful size. The country will definitely attract regional investors who are willing to channel funds into Shari’a-compliant investments. The Oman economy is quite stable and there are lucrative opportunities in the country. We will also see regional Islamic banking players expanding their operations in Oman.
What in your opinion is the looking forward to exploring the rest of Oman. Where would you like to see yourself ten years from now?
Inshallah, I see myself leading an Islamic financial institution. I also see myself playing a dynamic role in the further development of the Islamic banking industry through new initiatives.
