CBO embraces sustainability with Islamic finance initiatives

The Central Bank of Oman (CBO) is stepping up its efforts to integrate sustainability into the country’s financial landscape, with a particular focus on Islamic finance. Speaking at the IFN Oman Forum 2024, Tahir bin Salim al Amri, Executive President of the CBO, outlined several key initiatives aimed at aligning Islamic banking with sustainable development goals and green finance principles.

In his address, Al Amri revealed that the CBO is in the final stages of drafting a regulatory framework for climate risk management. This new circular will provide detailed guidelines for banks in Oman, including governance strategies for addressing climate-related risks. “We are taking decisive steps to integrate sustainability and green finance principles into the banking sector, in alignment with Oman’s national vision and strategic plans,” Al Amri said.

The CBO has conducted extensive consultations with the banking industry to ensure that the regulatory requirements meet both industry needs and global best practices. The circular will serve as a foundational framework for banks to manage environmental, social, and governance (ESG) risks, although the CBO is encouraging institutions to voluntarily adopt broader sustainability approaches. Banks will have the flexibility to align their sustainability disclosures with international standards, which will further improve transparency and investor confidence in Oman’s financial system.

Al Amri emphasised that sustainability is no longer just an option but a crucial element in maintaining competitiveness and ensuring long-term resilience. “By embracing sustainability, banks and financial institutions can not only contribute to a more resilient and sustainable economy but also enhance their reputation and long-term competitiveness,” he added.

Beyond sustainability, the CBO is also focused on expanding the range of Sharia-compliant financial products to drive growth in the Islamic banking sector. A new licensing framework is being prepared to enable finance and leasing companies to offer Sharia-compliant products. This move is expected to open up new avenues for Islamic finance in the country and attract more investors.

In addition, the Central Bank is working on a regulatory framework to guide the voluntary conversion of conventional banks and branches into Islamic banking institutions. Al Amri noted that this follows the model seen in many other countries where conventional banks operate alongside Islamic ones. Oman’s Islamic banking sector has already made significant contributions to the economy, despite its smaller market share. Since 2013, Islamic banks have contributed RO 6.4 billion in new Sharia-compliant financing, amounting to nearly half of the additional deposits generated in the last decade.

To support these developments, the CBO has also been investing in the infrastructure needed to provide liquidity to Islamic banks. A treasury platform is being developed to launch additional Sharia-compliant liquidity instruments, such as lender-of-last-resort facilities and Islamic treasury bills. “The CBO has already offered one liquidity instrument, and we are targeting the launch of further Sharia-compliant tools by the end of the year,” Al Amri announced.

As Oman looks to diversify its economy and build a more resilient financial sector, Islamic finance is poised to play a crucial role. “The Central Bank of Oman is committed to supporting the sustainability journey of our banks and financial institutions, ensuring a prosperous future for the sector and the country,” Al Amri concluded.