Al Busaidy Mansoor Jamal & Co.

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Central Bank of Oman

IFN Islamic Finance Forum returns to Muscat

Filed under AMJ News, Capital Markets, Central Bank of Oman, Islamic Banking and Finance

AMJ is partnering with the IFN for this major event in the Islamic finance sector calendar in Muscat on March 7, 2017.

With keynote addresses by H.E Abdullah Al-Salmi, Executive President of the Capital Market Authority and H.E Hamood bin Sangour Al Zadjali, Executive President of the Central Bank of Oman, the Forum will provide an opportunity for industry players to gain insight into Oman’s Shariah-compliant capital raising and investment space as well as to network with other executives and leaders from government, industry and institutions.

This 2017 Forum builds on the success of the inaugural seminar last year which brought together more than 120 senior industry players from across the GCC with 26 domestic and international speakers. It will include an audience with the regulators and expert panel discussions on legislative and regulatory developments in the Islamic finance space as well as the outlook and prospects for Oman’s fast fund management industry, more sukuk issuances and cross border deals

For more information, contact Bernadette Bhacker-Millard

New SME definition may relieve pressure on bank lending target

Filed under Banking and Finance, Central Bank of Oman, News, SMEs

Central Bank of OmanOman’s banking regulator, the Central Bank of Oman (CBO) has been at the forefront of promoting policies which facilitate access to finance for the nascent SME sector in the country. Initiatives include a regulation mandating banks to allocate a minimum 5% of their total loan books to SMEs by the end of 2015.

This measure, introduced following a 2014 CBO report which recognised limited access to and the high cost of finance as an inhibiting factor for SME growth, has posed challenges for the banking sector. The small number of SMEs in the market combined with their relatively modest financing requirements, means that the larger banks in particular face difficulty building up sizable loan books in the segment.

A new definition of SME introduced in January 2016 which significantly increases the number of enterprises eligible for SME funding is expected to make it easier for banks to reach the 5% target. Essentially, larger enterprises (measured by the higher of turnover or staffing levels) will now be treated as SMEs. The decision classifies a micro enterprise as one with 1-5 employees and turnover of less than OMR100,000 (previously 1-4 employees and turnover of less than OMR25,000); a small enterprise has 6-25 employees and turnover of OMR100,000-499,999 (increased from 5-9 employees and turnover of OMR25,000-250,000); and a medium enterprise has 26-99 workers and turnover of OMR500,000- 2,999,999 (increased from 10-99 employees and turnover of OMR250,000-1,500,000).

According to industry experts, the measures taken by the banking regulator have led to plenty of liquidity in the market to finance smaller firms. The main challenges now for the sector are lack of innovation and entrepreneurial culture, business skills and proper auditing/accounting mechanisms for SMEs.

For further information, contact banking and finance team members, Marcus Pery or William Barrie.

Private sector must comply with SPS

Filed under Banking and Finance, Central Bank of Oman, Oman Labour Law

5Private sector companies will face increased scrutiny from January 2014 over compliance with new salary protection rules according to Suhail Yahya al Khasabi, the head of the ministry of manpower’s salary protection centre.

The Salary Protection System (SPS) is a national electronic platform implemented jointly by the ministry and Central Bank of Oman which requires employers to pay all staff salaries through authorised financial service providers in the Sultanate in accordance with article 53 of the Oman labour law. The primary objective of SPS is to ensure that workers are paid on time and in accordance with contract in order to avoid disputes. The ministry receives 5,000 to 10,000 complaints from Omani and expatriate workers relating to non-payment of wages every year. The system is particularly beneficial to low-salaried and uneducated employees who are vulnerable to exploitation by employers. A further advantage of the SPS will be the availability of a real-time database on the labour force which can be used for a number of purposes such as to monitor private sector companies’ compliance with labour-related policy such as Omanisation policy and to identify the employment of illegal workers.

Central Bank of Oman mandates lending to SME sector

Filed under Banking and Finance, Central Bank of Oman, News, SMEs

news-imageReforms introduced by the Central Bank of Oman (CBO) in May, mandate all banks operating in the Sultanate to lend a minimum 5% of their credit portfolios to small- and medium-sized enterprises (SMEs) by December 31, 2014 . As well as boosting the availability of financing for Oman’s fledgling SME sector, the reforms aim to ease the flow and reduce the high cost of credit to a sector the government considers an engine of growth for the future.

Key features of the reforms include:

  • Low interest/low cost credit for SMEs;
  • Relaxation of the prudential requirements governing SME loans, most notably by reducing their risk weights by 25%;
  • Domestic banks are required to set up dedicated SME finance departments with trained staff headed by an AGM, and engage in a “formal and periodical” exchange of views with the SME sector;
  • Foreign banks are instructed to “formulate a liberal lending policy” consistent with CBO regulation and the government’s vision and to dedicate trained staff to cater to the SME sector;
  • Introduction of reporting requirements, namely:-
    a. a monthly return on SME lending commencing from June 2013;
    b. a quarterly return of the loan appreciations received and processed, commencing from the quarter ending September 2013.”

In addition to these mandatory requirements, the CBO invites banks to support the SME sector by providing assistance on project planning, finance and business management, business initiatives, technical support, sourcing of raw materials, process management and marketing.
The reforms stresses that at no time should the portfolio of any bank fall below 5% and any bank which already allocates a larger share of its portfolio to SME lending cannot reduce its limit to the minimum.

While the regulations leave unclear the extent to which lending practices should be loosened, (stipulating that banks “should not be guided by collaterals in their credit decisions” when lending to SMEs but should still “equip themselves well in a systematic way”), there is no mistaking the thrust of the new CBO measures. As bank lending growth in Oman hit a 22-month low of 10.9 percent in February, the regulations urge banks to take measures “on an urgent basis, keeping in mind the vital role of SME segment in economic diversification, contribution to the national economy and Omani employment”. Supporting SMEs is a key part of the government’s economic policy for tackling unemployment in Oman, estimated at more than 24 percent by the International Monetary Fund and avoiding the recurrence of 2011 protests against joblessness.

SMEs have been widely recognized as effective and successful in developed markets, where they are responsible for much of the growth in new jobs contributing to 60%–70% of employment and more than 50% of GDP. However, in spite of the acknowledgment that SMEs are critical to economic development, many face substantial barriers to growth and sustainability ranging from limited access to and the high cost of finance as well as an unfavorable regulatory environment. Other challenges to the growth of a robust SME sector are lack of business management skills and market linkages needed to grow and succeed.