For religious reasons, Omani clerk Ali al-Sulaimi does not believe in paying interest on borrowed money, but he badly wants to build a house for his family.
Islamic banks "should open today already", said Sulaimi, dressed in a white dishdasha robe and traditional Omani woven hat called the kuma, as he went to prayers at the Sultan Qaboos Grand Mosque in the capital Muscat.
Now an edict issued by the central bank in May this year is set to meet demand from Sulaimi and other Omani Muslims who have long called for the sultanate to embrace the Islamic finance industry, which operates according to the religion's sharia law.
Oman, home to roughly three million Muslims, is seen as an untapped opportunity for Islamic finance, which prohibits the lending of money for interest and other activities that violate religious principles.The Islamic finance market has grown to nearly $1 trillion globally, analysts estimate. But unlike neighbouring states such as the United Arab Emirates and Iran, which have embraced the industry, Oman until this year remained stubbornly secular in its approach to finance. Its central bank head said in 2007 that "banks should be universal."
Oman reversed its stance after seeing a steady trickle of investment money flow to nearby countries with well-established Islamic banking sectors. The decision was also seen as one way of appeasing its population, after the sultanate faced several public protests demanding more jobs and an end to corruption - demonstrations which prompted the government to promise to boost spending by $2.6bn.
Setting up Islamic banking is not an overnight proposition. Legal and banking experts said it could take between three to five years for the industry to gain momentum in Oman as financial institutions acquired expertise and brought in experienced professionals. Many banks appear to consider the effort worthwhile, however."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 $6bn industry in Oman."
The commercial banking sector has seen steady gains in both deposits and assets over the past two years, according to central bank data. Total deposits at commercial banks reached OR11.2bn ($29bn) at the end of June, up 14.3 percent from a year earlier, while total assets climbed 4.5 percent to OR16.3bn.In an Islamic mortgage transaction, of the kind which may allow Sulaimi to build a house in the next year or two, a bank does not lend money. Instead, it might typically buy the asset from the customer and then resell it at an implicit profit, allowing the customer to pay the bank in instalments - a practice called Murabahah.