The launch of Bank Nizwa has given momentum to the growing Islamic finance market in Oman. A second lender, Alizz Islamic Bank, opened in September.
However, the lenders will face stiff competition from conventional banks, which are also allowed to offer Islamic finance through a separate window. These banks have an already established brand and customer base, meaning Bank Nizwa and Alizz Islamic Bank will potentially have to be much more aggressive in their pursuit of customers. However, pure Islamic banks could have funding cost advantages compared with their conventional peers.
Omans two Islamic lenders will not immediately face competition from other new entrants to the market. The sultanate is likely to develop its Islamic banking sector relatively slowly and the central bank is not planning to issue any more Islamic banking licences in the near future.