Meeting liquidity expectations in Omanís Islamic banking sector

The Central Bank of Oman (CBO) has announced the launch of an Islamic liquidity management project on the 24th July 2018. The project aims to develop effective tools and solutions for the liquidity management of Islamic banks and the solutions are said to be developed to work within the Islamic Banking Regulatory Framework (IBRF) of Islamic banking in the Sultanate.


The Islamic banking sector, as compared to its conventional counterpart, is generally more liquid due to the variation in the requirement to allocate between cash or central bank reserves and placements with other financial institutions. As Islamic  finance is founded on asset-based financing contracts and generally long-term, the central banks of most countries require lesser cash reserves allowing more placements with financial institutions. This gives greater liquidity to Islamic banks including the banks and windows functioning in Oman.


Generally, central banks rely on short-term credit instruments such as certificates of deposit, treasury bills and development bonds, apart from the reserve requirements to combat and inject liquidity into the banking sector. The Islamic banking sector is no different and needs such efficient products that serve as a destination of surplus funds. However, at present, there does not seem to be many options available for Islamic banks in Oman. The IBRF does not permit the excess liquidity to be deployed in short-term credit instruments such as commodity Murabahah and such, in line with the International Islamic Fiqh Academy which prohibits the ‘organized use’ of Tawarruq. The only exception may be a real emergency where any Islamic bank’s survival is genuinely threatened. This is still by way of a special application to the respective Shariah supervisory board on a one-off basis and the term cannot exceed three months. To date, no such application has been received by the boards.


Hence, it seems liquidity management is not complete without developing Shariah compliant products that off er liquidity solutions. This may even, in turn, assist the need of liquidity of some banks that are facing temporary deficits in the same market. In other parts of the world, there are products such as Islamic credit cards, Salam (forward financing transactions), sale and leaseback structures and advances against trade receivables.


Thomson Reuters has been appointed to develop these innovative solutions for liquidity management and the project is expected to be implemented in 2019. The CBO’s High Shariah Supervisory Authority came together on the 5th August 2018 for its second meeting of the year at its headquarters chaired by Sheikh Dr Kahlan Nabhan Al Kharoosi and discussed the draft regulation for Islamic banking business which is underway and a bank’s request for a Sukuk funding program, according to a news bulletin on the CBO’s official website. The authority usually will provide a brief on the follow-up actions in subsequent meetings.


Dhana Pillai is the head of real estate, tax and project finance at Al Hashmi Law Firm (Oman). She can be contacted at