ISLAMIC BANKING IN OMAN: OPPORTUNITIES AND CHALLENGES (Research Paper Sample)

A STUDY ON ISLAMIC BANKING IN OMAN: OPPORTUNITIES AND CHALLENGES
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Abstract
The economy of Oman is based on oil production, however, banking sector is a sure bet for diversification. Islamic banking found its way recently into the market and has been making tremendous impacts. The purpose of this study is to study the opportunities and challenges of Islamic banking in Oman. Exploratory research design was used in the study. The study was based on non- positivistic approach to answer the research questions. Data was collected from five Islamic banks in Oman whereby 50 staff members were studied. Data was collected using questionnaire data collection method. The study findings indicated that there are various opportunities and challenges of the banking system in Oman.
Table of Contents
1.CHAPTER 1: INTRODUCTION8
1.1Background of the Study8
1.2Problem Statement10
1.3Research Aim, Objectives and Questions11
1.4Significance of the Study11
2.CHAPTER 2: LITERATURE REVIEW12
2.1The Islamic Finance Industry12
2.2Financial Sector in Oman13
2.3Islamic Banking in Oman14
2.4Chapter Summary18
3.CHAPTER 3: RESEARCH METHODOLOGY19
3.1Research Design19
3.2Research Methods20
3.3Data Collection21
3.4Data Analysis and Interpretation21
3.5Ethical Consideration21
4.CHAPTER 4: DATA ANALYSIS23
4.1Demographic Information23
4.2Challenges of Islamic Banking24
4.3Opportunities of Islamic Banking28
5.CONCLUSION AND RECOMMENDATIONS30
LIST OF REFERENCES31
APPENDIX33
List of Tables
Table 3.1: Banks investigated……………………………………………………………………16
Table 4.1: Demographic profiles of the respondents…………………………………………….19
Table 4.2: Misunderstanding and lack of standardization of Islamic financial concept…………20
Table 4.3: Limited risk management functionality………………………………………………21
Table 4.4: Limited market based financial intermediations and products……………………….22
Table 4.5: Relationship between challenges and market share of Islamic banking in Oman……23
Table 4.6: Opportunities of Islamic banking…………………………………………………….24
Table 4.7: Relationship between opportunities and market share of Islamic banking in Oman...25
CHAPTER 1: INTRODUCTION
Banks and other financial institutions are important and sensitive institutions in the society because the engage in providing financial support for businesses. Islamic banking is different from other forms of banking especially due to its interest rates and relationship with the Islam religion. Islamic banking strategy was traditionally functional among the Muslims only because it is highly related to the religion but it has been adopted even in non- Muslim areas. This study established the challenges and opportunities of Islamic banking in Oman.
Background of the Study
The economic growth of a country is based on the performance of its financial sector among other factors with the banking sector being the most dominant. As mentioned by Siraj and Pillai (2012), the growth and stability of any economy is determined by the level of stability of the banking sector. This is because the banking sector acts as an intermediary that links deficit and surplus hence facilitating funding for productive purposes. The authors asserted that despite that banks are identified as playing the function of managing cash, credit and payment functions as well as insurance, they as well play the role managing transactions of various parties as financial intermediaries. Currently, banks have experienced significant changes which have revolutionized the entire industry. The main changes include service proliferation, geographical expansion and government regulations. Introduction of Islamic banking is one of the transformations experienced in the banking industry (Hudgins & Rose 2013). Currently, Islamic banking operates globally to Islamic and non- Islamic territories and it is viewed as an alternative to conventional banking system. As noted by Kinyanjui (2013), despite that Islamic banking system was developed to satisfy the needs of Muslims, presently, the system has achieved global acceptance and it is recorded as among the greatest rising areas in the banking and finance as noted by the Haron and Abdul (2012). Islamic banking has grown significantly in the market to the extent that in 2012, the assets increased to $1.3 trillion indicating an annual growth rate of 19% (Mubeen, Kulkarni & Hussaini 2014).
Since the outset of the oil era in early seventies, diversification of the economy has been a focus of Oman. The aim of the country’s development plan is to achieve sustainable economic growth, creation of job opportunities, development of the private sector, development of human capital and achievement of sustainable social and environment friendly path. The Sultanate depends heavily on oil and this dependence is described as very dangerous trend by Salim and Ani (2015) and Al Maha Financial Services (2014) and requires promotion of non- oil sectors. The government of Oman has argued that strong fundamentals as well as economic diversification efforts are the main drivers towards the achievement of increased growth. As a result of this, the country achieved a 3.9% economic growth in 2009. Oil producing countries are highly dependent on oil in their economic growth and development strategies and hence in case of a drop in oil prices they are adversely affected.