As the sultanate gears up to roll out Islamic banking early next year, Omani banks are preparing to adopt necessary changes to offer the new service.
One of the key changes will be implementing new Islamic banking software solutions to ensure that the service is compliant with Shariah principles and central bank regulations. Temenos, one of world's leading providers of banking software solutions, is working closely with some of the banks in the country to offer them the software solutions.
In an interview with Muscat Daily, Thamer al Harbi, regional sales manager- Middle East, Temenos spoke about the technological requirements and challenges that banks will face while launching Islamic banking in Oman.
What are the technological challenges that Omani banks may face while starting Islamic banking?
Most Omani banks selected their system and had set up their technological infrastructure many years ago without any consideration about Islamic banking as it was not offered in Oman earlier.
The main challenge that most of the banks will face in the beginning is how to expand into Islamic banking with minimum investment and minimum operational cost. The biggest technological challenge would be to implement a robust software system, which will enable them to compete in this market as fast as possible.
As we have seen in other markets, customers will decide which bank they have to choose for services within the first six months of the launch of Islamic banking in Oman. At the time of the launch of the service in Oman, there will be tough competition among banks to win over new customers in this new line of business. So the challenge is how quickly banks can introduce Islamic products in the market.
From the technology point of view, will it be easy for the two upcoming full-fledged Islamic banks to compete with existing banks offering the service?
Definitely, from a technology point of view, it will be easy to start and manage a full-fledged Islamic bank compared to conventional banks with Islamic windows.
For conventional banks, the challenge is bigger as they are not using a technology that enables them to expand into this new sector. These banks need to acquire completely new systems and integrate it to provide services which will incur additional cost. It is going to be same thing which we had seen in other markets.
When commercial banks think of offering Islamic banking windows they require to keep conventional banking practices, such as accounting, funds and technology, completely separate from Islamic offerings.
Banking solutions - like Temnos's T24
Banking Solution- allow banks to implement the solutions faster as they are 100 per cent compliant with central bank regulations. With the implementation of this type of system, banks can expand their technological infrastructure without putting a huge burden on capital expenditure.
However, the Central Bank of Oman (CBO) is yet to announce the regulations for Islamic banking and we are waiting for that. We offer all banking related services in terms of compliance, business intelligence and central bank reporting with a single application which is available in T24.
How difficult and costly would it be for the conventional banks to acquire new systems for Islamic banking?
For the conventional banks that are already using a unique banking solution like T24, the expansion into Islamic banking becomes easy, fast and less costly. For example, BankMuscat had selected T24 earlier and now it is very easy for them to expand into Islamic banking and start operations early. This system does not put any limit on future expansion of banking services and the expansion becomes much easier and less costly than acquiring a new system.
However, most of the banks in Oman have very limited technological infrastructure and they will require a separate system to launch Islamic banking windows.
The clients using T24 for Islamic banking benefit from adopting one core system to cover all aspects of the conventional as well as the new banking system. Temenos operates in 125 countries and have more than 1200 financial institutions as clients. It gives us a great global experience to fix our services in different markets.
What is your outlook about the growth of Islamic banking in Oman?
The Islamic Banking industry has developed hugely over the last 20 years, particularly in the Middle East and South East Asia with analysts predicting faster international growth and an increasing share of the global financial market. From the customers' point of view, the start of Islamic banking will be straightforward in Oman as a new market. But from the banks' point of view, it might be bit slow as they need to bring expertise from other markets.
However, we are seeing that most Omani banks have accelerated their learning and are interested in launching Islamic banking.
We understand that in the absence of Islamic banking many Omanis have been keeping their money with Islamic banks in other countries in the region.
Once Islamic banking is introduced here, it will enable people to keep their money with Omani banks. We also believe that there is a significant number of Omanis who are not using any banking services due to an absence of Islamic banking here. Once this new system of banking starts, we believe this money will also start flowing into the banking system, thus making the future bright for Islamic banking in the sultanate.
© Muscat Daily 2011
