Al Markazi OveralL Supervision H.E.Hamood Bin Sangour Al Zadjali Executive President Of The Cbo

communication Committee Mahboob Bin Moosa Al Moosa Chairperson

Adnan Bin Ali Jawad Suliman Deputy Chairperson

Taki Bin Abdul Husain Al-Lawati Said Bin Hilal Al-Hinai Ahmed Murad Al Bulushi Dr. Khalfan Al-Barwani Fatma Bint Rashid Al Mandhary Members

Fayaz Uddin Akber Shirazi Coordinator

Editorial Board Haider Bin Abdul Redha Al-Lawati Editor In Chief

Mohammed Bin Shafi Al-Hashmi Nasra Masaaod Al Hinaai Editors

Abbas Osman Elkhalifa Samah Maqbool Al Lawati Translators

Shafia Bint Darwish Al-Zadjali Graphic Designer

Correspondence Editor In Chief Al-Markazi , Central Bank Of Oman P.O. Box 1161, Pc 112, Ruwi , Sultanate Of Oman Url : www.cbo.gov.om E-mail: [email protected] Opinions Expressed In Al-Markazi Do Not Necessarily Represent Those Of The Central Bank Of Oman

a bi-monthly banking and economic puplication issued bilingually by the central bank of oman

inside the issue Oman Second Conference on Islamic Banking

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Foreign Exchange Reserve Management

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Host of Opportunities and Challenges in Prospect

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Food Security on the GCC Table of Discussions:

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The College of Banking and Financial Studies celebrates

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Central Bank of Oman P.O. Box 1161, Pc 112, Ruwi - Sultanate of Oman Tel: +968-24777777/24777392, Fax: +968-24777723 E- mail : [email protected]

Foreword Small and Medium Enterprises (SMEs) play a major role in diversifying the national economy, providing employment opportunities for jobseekers and the optimum utilization of local resources. On this basis, all institutions in the Sultanate of Oman are showing great interest in implementing the decisions made during the latest symposium on the development and advancement of SMEs, which was recently held in Bahla. CBO has recently issued a circular directing all licensed banks in Oman to allocate 5% of total bank credit to SMEs and achieve this objective by the end of December 2014. The CBO Board of Governors has taken note during its last meeting of the steps that have been taken by CBO officials and local licensed banks for the implementation of this decision. In the circular, CBO directs local banks that have the necessary means to seek to increase the above allocation as it is only the minimum target. Banks are required to make effort to exceed this limit to be able to contribute in the development of SMEs. CBO also notes that it may decide to raise the minimum target to more than 5% in the future in an attempt to provide credit to SMEs. Furthermore, the circular urges banks to provide credit to SMEs at low interest rates, coupled with lower costs and other associated expenses as much as possible. The key is to finance SMEs on a wider scale, taking into account their vital role in supporting socioeconomic development. Therefore, it is imperative that banks avoid asking SMEs for collateral that may thwart the decision-making process of granting credit. In this regard, licensed banks must be prepared to provide the desired financing for SMEs. This requires banks’ higher managements to apply flexible policies for SMEs while taking into account the government’s approach and the relevant supervisory and regulatory initiatives issued by CBO. Banks need to take the initiative by setting up separate departments entirely dedicated to SMEs and recruited with highly-specialized and experienced staff that are aware of the special requirements of SMEs and can sufficiently cater to the specific needs of this sector. On the other hand, foreign banks are required to assign highly-skilled and capable employees to carry out the functions related to SMEs on a full-time basis. In addition, these banks need to provide suitable and sufficient training for their staff to work on fulfilling the requirements of SMEs in terms of financing in the best way possible and in a timely manner. Furthermore, licensed banks are required to contribute in identifying the types of projects with financing potential, carry out financial and business management and provide guidance to SMEs on other issues pertaining to the search of sources of raw materials, management of production processes, marketing, etc. Meanwhile, licensed banks must take precautionary measures by retaining sufficient financial allocations against loans granted to SMEs and identifying the risks associated with financing SMEs. The circular also directed banks to prepare and submit monthly reports on the financing of SMEs in accordance with the formulation shown in the circular’s attachment, in addition to providing quarterly reports containing the details of loan applications received from SMEs. Ultimately, it is our hope that different groups of Omani youth become able to pursue self-employment and get involved in the operation and management of SMEs. It is also our goal that SMEs thrive across the Sultanate under the management of national manpower in light of the Royal Directives of His Majesty Sultan Qaboos bin Said to always give priority to Omanis to be part of every institution at any location. Good luck, Hamood bin Sangour Al-Zadjali The Executive President

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Oman Second Conference on Islamic Banking and Finance raises a number of Important Issues The conference discussed putting in place a Supportive and a Regulatory Legal Framework for Islamic Banking in the Sultanate as well as Developing and Improving its Organizational Structure. The Sultanate’s Islamic Banking Experience is new and requires Study and Evaluation of the Omani Market for the next several years Under the patronage of His Highness Sayyid Shihab bin Tariq Al Said, Advisor to His Majesty the Sultan, the Oman Second Conference on Islamic Banking and Finance was convened recently at Al Bustan Palace Hotel in Muscat. The Lebanese Al-Iktissad Wal-Aamal Group in collaboration with the Central Bank of Oman organized the two-day event. A number of Their Highnesses, Their Excellencies’ the Ministers and undersecretaries, as well as GCC Central Banks’ Governors, CEOs of the Union of Arab Banks and Islamic banks and enthusiasts of Islamic Banking from the Sultanate and abroad attended the opening ceremony. Also, present were around 300 people including officials of the banking sector and members and representatives of some financial, regulatory and Sharia authorities. In a statement to reporters, His Highness Sayyid Shihab said that the future of Islamic banking in the Sultanate was promising. It is making a steady headway ever since the promulgation of the Royal Decree No.

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69/2012. His Highness also pointed out that the organization of such conferences, sponsored by renowned international Islamic banking institutions is a clear indication that this sector is poised to grow and develop. The development of this sector will not only add value to the national economy but to the entire Arab region. A number of Gulf and Foreign Banks have expressed their desire to open Islamic Banks in the Sultanate H.E Hamood Sangour Al Zadjali, Executive President of the Central Bank of Oman, announced that some GCC and foreign banks have expressed their keen desire to open Islamic banks in the Sultanate, but the CBO felt that it was first obliged to give this opportunity to local licenced Islamic banks and Islamic windows in conveational commercial banks. Later on, the Executive President said, the CBO would assess the condition and the size of the local market and take the necessary measures before a decision is made to allow new local or foreign banks. With respect to

licensing of new Islamic banks, H.E. explained that Islamic banking in the Sultanate was at its nascent stage and that it requires years of study and evaluation of market. Meantime, the CBO Executive President informed that Al Izz Islamic Bank is expected to start its operations in the second half of this year. H.E denied existence of any complexities enforced by the CBO constraining the Islamic banks in the country because the systems laid down by the bank were among the best as per the industry standards. The systems and procedures were also recognized by different supervisory and regulatory bodies and authorities. Issuance of Islamic Sukuk in the Sultanate by the end of this year or the beginning of next year Regarding issuing of Islamic Sukuk (Islamic Bonds), the Executive President of the CBO revealed that the authorities have initiated efforts in this regard in collaboration with the Ministry of Finance. However, he added although there was no specific timetable on the Sukuk issue as of now, but sometime towards the end of this year or early the next year (2014), a decision will be taken on Islamic Sukuk. H.E explained that Islamic Sukuk were different from the government development bonds, and as such issuing these sukuk warrants undertaking several procedures like ascertaining the value of the assets and projects upon which the Sukuk would be based. Regarding the interest rates in the Sultanate, H.E said that the banks were free to decide the interest rates for their clients. He pointed out that the CBO had already identified 7% as a ceiling for the interest rates, and the commercial banks should not go beyond that ceiling, he said adding that there were few banks which were offering a much lesser interest rate then the cbo bfixed ceiling. H.E the Executive President of the CBO who delivered a speech at the conference before said that the domestic banking industry had seen many developments, the most prominent of which was the promulgation of Royal Decree No. (69/2012) dated 06/12/2012 amending some provisions of the Omani Banking Law issued vide Royal Decree No. (14/2000). This Royal Decree added new horizons to the Omani banking sector by authorizing the operation and practice of Islamic banking through the establishment of dedicated Islamic banks

H.E Hamood Sangour Al Zadjali,

or independent Islamic windows at licenced commercial banks. HE said that the new Articles incorporated in the Banking Law included new provisions relating to the legal framework for Islamic banking, licensing, control and supervision and also about the jurisdiction and powers of the CBO’s Board of Governors in drafting rules and regulations governing Islamic banking in the country. Due to the special nature of Islamic banking, the new amendments included provisions for exempting Islamic banks from paying the fees that is imposed for dealing in real estate, and moveable assets. The provisions also included the basis of Sharia supervision on Islamic Banking. In addition to the above, the CBO issued regulatory and supervisory framework for Islamic banking. This framework included clear instructions and detailed information about regulatory issues. These include licensing requirements, legal supervision, accounting standards; audit reports and audit requirements related to capital adequacy, credit risk, market risk, operational risk, liquidity management, and all other risks associated with them. Full compliance with banking and Sharia supervision requirements creates a suitable environment for the growth of Islamic banking in the Sultanate H.E the Executive President also said, “We are sure that the existence of a solid, supportive and effective legal and regulatory

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framework, will ensure full compliance with the requirements of Islamic banking and Sharia supervision, and it will create a suitable healthy environment for the growth of Islamic banking in the Sultanate. In that, we have taken advantage of the experiences that preceded us in the field of Islamic banking. We have also been largely benefitted because of the controls and monitoring mechanisms developed by international bodies for sustaining Islamic banking principles, foundations and regulatory standards. With the completion of legal and regulatory framework for Islamic banking, the Central Bank of Oman issued a banking license for Bank Nizwa, which began offering Sharia compliant banking services in accordance with Islamic law, in the beginning of January this year. The CBO also granted an initial approval to Al Izz Islamic Bank to practice Islamic banking. It is hoped that this bank will begin to provide its services in the near future. Bank Muscat, Al Ahli Bank, Bank Dhofar, National Bank of Oman and Oman Arab Bank, were all licenced to open new independent windows to practice Islamic banking. H.E the Executive President explained that Islamic finance was expanding steadily at the global level in terms of financial resources, the number of institutions and the amount of proliferation. Studies on this issue indicate that the value of bank assets and international Islamic finance is witnessing significant growth rates of around 20 percent annually. This

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remarkable success no doubt, naturally imposes a set of challenges; perhaps the most important of these challenges is the need for fully understanding the rules of Islamic finance and its Sharia controls and applications. This necessarily requires the existence of qualified cadres capable of promoting the Islamic banking industry and taking it forward towards its desired goal. Therefore, it is incumbent on the Islamic banking institutions to develop plans and programs for the training and qualifying of its employees. They need, therefore, to initiate training and employee development programs and plans based on informed scientific methodology. On the other hand, it was imperative that Islamic banking institutions worked hard to comply with the Sharia legal frameworks and avoid simulating traditional banking products. Consequently, these institutions need to develop varied and innovative Sharia-compliant financial instruments and products that offer these institutions sufficient flexibility and freedom to respond efficiently to the needs of the public. These products should be credible, trusted and accepted. H.E the Executive President added that although the Islamic banking industry in the Sultanate is still nascent, and in the initial stage of development and operation, the initiation of the Islamic banking business has resulted in unprecedented activity in the banking sector. It has forced many licenced commercial banks to increase their capital in order to start independent Islamic windows, alongside the two licenced Islamic banks. The capitalization of Islamic banking in the Sultanate now stands at RO 500 million. There is a state of optimism pervading all those involved in the Islamic banking industry in the Sultanate. This was due to the expected gains, along with the potential role that the Islamic banking industry

would play in stimulating the national economy by contributing in the financing of various economic projects. Therefore, licenced Islamic banks and windows have to exert more effort in order to attract savings, diversify and develop new financial instruments. They also need to focus on improving the quality of their banking services. “The CBO looks forward to best practices of Islamic banking, along with the correct and effective application of Islamic Sharia rules to ensure the safety and integrity of the banking sector and its growth, and to provide added value to the national economy.” H.E said. Launch of Islamic banking in the Sultanate results in expansion of the market Speaking at the conference, Faisal Abu Zaki, Deputy CEO of Al-Iktissad Wal-Aamal Group, said that the launch of Islamic banking in the Sultanate was a positive factor because it is likely to expand the base of the market and at the same time create healthy competition within the sector. He explained in his speech that the Royal Decree, which opened last year the door to start Islamic banking, has come as a thoughtful development that completed the march of economic openness in the Sultanate. The landmarks of this openness include allowing foreign investment, industry and real estate investment in specific projects, the development and structuring of the financial market in order to protect investors and enhance the financing options. He pointed out that all these considerate steps came in the context of diversifying the base of the Omani economy, providing funding for projects and

Faisal Abu Zaki

businessmen and providing job opportunities for citizens. The Omani experience was one of the few that had a Solid and Clear basis Mr. Adnan Ahmed Youssef, Chairman of the Union of Arab Banks, delivered the keynote address entitled “The Role of Oversight in the Growth of the Financial Market”. In it, he said that the experience of Islamic banking entered its second year in the Sultanate

Adnan Ahmed Youssef

since the Central Bank of Oman announced the establishment of Islamic banks that operate in accordance with the provisions of Islamic Sharia Law. He added that the Omani experience required more time to study, assess and appreciate, as it was one of the few experiences deserving some undue attention. He said that the Omani experience had clear and solid foundations in terms of the strong preparation of its regulatory infrastructure and the creation of an appropriate legislative environment. All this, he said was to ensure the existence of regulatory and supervisory regime that is capable of contributing positively in achieving the objectives of monetary policy in light of a stable financial system. Islamic banking assets world over to be worth US$ 1. 8 trillion by the end of the current year The conference saw a number of pertinent and valued interventions by Their Excellencies the Governors of the GCC Central Banks. H.E Sheikh Abdullah bin Saud Al Thani, Governor of Qatar Central Bank acclaimed the steady growth achieved by Islamic banking in the region and its broad proliferation worldwide. Islamic banking assets, he said amounted to a total of about US$ 1.3 trillion by the end of 2011 and could

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reach US $ 1.8 trillion by the end of this year. Among the results of this significant expansion was the upsurge in interest all over the Arab and Islamic world, and even throughout the Western world as well with Islamic banking operations. Many conferences and seminars looked into the issues and modalities of Islamic banking and the challenges facing it. This conference thus, comes as an important milestone in these efforts, concentrating attention on the Omani experience and to shedding light on the regulatory and supervisory framework that governed it. HE the Governor of Qatar Central Bank said, “The experience of the State of Qatar in the field of Islamic banking is perhaps one of the oldest and most diverse in the Gulf region. Islamic Banking started in Qatar in 1982, when, Qatar Islamic Bank was established. Due to the vertical and horizontal expansion in the field of Islamic banking in Qatar, the assets of Islamic banks have doubled several times to reach QR 195 billion by the end of 2012, compared with QR 8.8 billion at the end of 2002. The percentage of assets of Islamic banks by the end of 2012 jumped to 23.8 percent of the total assets of the banking system compared to 14 percent in 2002. The deposits with Islamic banks also soared to QR 121.6 billion, representing 26 percent of the total deposits of the banking system. The figures of Islamic banking increased in parallel to QR 122 billion while the profits of Islamic banks doubled to QR 3.8 billion during the same period “. Several reasons why Islamic Windows were closed in Qatar in 2013 His Excellency added that due to the rapidly accelerating demand for Islamic banking services in the Qatari market, conventional banks requested Qatar Central Bank (QCB) at the beginning of 2005 permission to provide financial services through Islamic Windows or subsidiaries. Qatar Central Bank approved this request due to its commitment to raise the level of competition in the Islamic banking industry and serve bank customers. For this purpose, QCB issued guidelines and regulations governing the operations of those windows. However, the outcome was not completely satisfactory. Soon, QCB discovered shortcomings in the implementation, due to confusion in distinguishing the difference between Islamic and traditional conventional financing activities. Qatar Central Bank, therefore, found that the continuation of the experiment was not possible

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for many reasons. First, the wide difference in the nature of risks, the need to increase the ability of both Islamic and conventional banks to develop their activities and efficiently manage their risks, and the need for achieving the objectives of supervision and control, monetary policy management and achieving financial stability were listed as some of the reasons. Accordingly, Qatar Central Bank took a decision in early 2011 to stop the operation of Islamic windows. It gave them a time limit of one year to allow the liquidation of assets and liabilities in accordance with their maturity dates and other contractual terms. The Governor of Qatar Central Bank stressed that QCB still supported the operation of Islamic banks in the country and encouraged the development of the appropriate supervisory and regulatory framework that took into consideration the unique kind of risks these institutions are bound to face. It also aimed at providing the mechanisms and tools that help manage their investments and liquidity, particularly issuing of short or mediumterm Sharia-compliant Sukuk and other financial instruments. Despite the success of Islamic banking, it faces significant challenges, especially the continuing need to develop its products and the innovation of new Sharia-compliant products that also meet the requirements of the local and global financial and economic system. There was also an urgent need to complete and improve the legal infrastructure governing the relationship between Islamic banks and their customers and make it consistent with domestic and international laws. It was also necessary to raise awareness and understanding among the public of the different kinds of Islamic financial products. Transparency is also imperative for disclosing the associated risks and the differences between Islamic and conventional financial products. Finally, efforts were necessary to enhance the capabilities and expertise of Islamic banking staff for the advancement and development of Shariacompliant products. His Excellency said that Qatar’s interest in supporting Islamic banking was not limited to the activities of banks, but extended also to the activities of Islamic investment and finance and Takaful (Islamic Insurance) companies. The new Banking Law issued by the Emir of Qatar in October last year has reinforced the powers granted to QCB in the supervision and control of all financial services, in the State of Qatar.

the UAE started developing tools to absorb short-term liquidity, he said. Distinguishing between depositors funds and shareholders’ funds represented another challenge while the different fatwas (Islamic rulings or edicts) issued by Sharia Supervisory Boards was an added challenge, in addition to the difficulty, of effecting transparency in business practices, which constituted a fourth challenge.

The Kuwait Islamic Banking Experience successfully completes its Initial Phase Speaking about Kuwait’s Islamic banking Industry experience HE Dr. Mohammed Yusuf Al-Hashel, Governor of the Central Bank of Kuwait, made a presentation titled “The Present and Reality of Challenges facing the Kuwaiti Experience”. In this presentation, he stressed that the experience of the banking business in Kuwait has successfully completed the start-up phase. The economics of supply and demand governed the experience he said. He pointed out that, although all the mechanisms and potentials were available, they were still insufficient, and that the challenges were numerous, and thus the required adjustment was massive. He added that the experience of the State of Kuwait developed over a period spanning forty years. Comprehensive and flexible laws were enacted that took into account the special conditions of the country and the availability of the tools necessary for the sustainable development and growth along with the proper understanding of the Islamic banking industry and sufficient knowledge of the true nature of the Islamic banking industry. This he said also required tightening the control measures by the regulatory authorities. The UAE Islamic Banking Experience began with the establishment of Dubai Islamic Bank in 1975 On the other hand, His Excellency Sultan Bin Nasser Al-Suwaidi, Governor of the Central Bank of the United Arab Emirates, explained that UAE’s experience in Islamic banking began in 1975 with the establishment of Dubai Islamic Bank. He said that the country has eight Islamic banks with 240 branches. The assets of the entire banking sector stood at US$ 77.4 billion, with the assets of Islamic banks representing 16% of those. He pointed out that liquidity management was one of the most serious challenges facing Islamic banking in the UAE. That was why

The Conference discussed the Integration and Interdependence of the various legal and Legislative Systems Throughout the two-days of the conference sessions, participants addressed several topics, but the focus was on setting up the legal framework that supported and regulated the Islamic banking activities, as well as developing and improving its organizational structure. They also addressed the importance of securing integration and interdependence between the various legal and legislative systems, bridging regulatory gaps, establishing compatibility with international standards, maintaining the stability of the Islamic banking industry and keeping up with the requirements of its progress. The discussions that followed the sessions were rife with urgent questions raised by the participants. One question was about why authorities did not allow Islamic banks to replace traditional commercial banks completely. Answering this, His Excellency Sultan Al-Suwaidi expressed his belief that consumers had the right to have diverse services to exercise their rights in choosing what suited them. Responding to the same question, His Excellency Hamood Sangour Al-Zadjali, Executive President of the Central Bank of Oman, pointed out that if Islamic banks were to be able to prove themselves and pull the rug out from under commercial banks this could be possible. On another question regarding the reasons for allowing the opening of Islamic windows in commercial banks, HE Executive President said that the goal was to broaden the base of Islamic banking services and increase competition among service providers for the benefit of the targeted customers. A member of the Sharia Supervisory Board of Bank Dhofar’s Islamic window inquired about the requirement of providing qualified staff in this sector and the role of both regulators and the Boards of Directors of banks in this regard. He pointed out that members of the

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Sharia Supervisory Boards have been usually familiar with the aspects of Sharia Law but not with banking operations. In reply, the CBO Executive President said that Islamic banking was a new activity in the Sultanate and that there were efforts to raise awareness about all aspects relating to this sector. He added that the Central Bank of Oman was continuing to hold seminars, workshops and conferences in order to raise awareness about the foundations of Islamic banking. This created synergy among the various stakeholders to work together to meet the challenge posed by providing qualified personnel, he said. Regarding the alleged complexities faced by Islamic banks, the CBO Executive President pointed out that the CBO welcomed any complaints on this issue and any information that allowed the bank to know of any difficulties facing the operations of Islamic banks in the country and that ultimately, the CBO would try to find solutions to overcome such obstacles. The discussion touched upon the road map of Islamic banking in the Sultanate along with the assessment of market realities and opportunities it entailed. It also addressed the strategies and action plans that both Islamic banks and windows should choose to adopt in order to build a solid presence in the Omani market, as well the engines that drive the growth of Islamic banking in the Sultanate. The conference sessions also discussed the good governance and sound operation of Islamic banking in the country, as well as the proper and effective implementation of the

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rules and provisions of Islamic Sharia Law. These were required in order to ensure the integrity and desired growth of the banking sector and strengthen its role in increasing public awareness about the rules of Islamic banking and its products in providing added value to the national economy. The sessions also discussed other different subjects, such as the contribution supporting the real economy, financing of emerging initiatives, the role of Islamic banks in the development and innovation of products and services, as well as the funding required for meeting the needs and requirements of the market. They also discussed the contribution of Omani Islamic banks in financing leading companies and the ongoing infrastructure development projects in the Sultanate, as well as supporting small and medium enterprises (SMEs) and other emerging initiatives. Recommendations of the Conference The Conference concluded by holding three additional sessions. In these sessions, participants addressed marketing and promotion strategies of Islamic banking in the Sultanate, and also the methods required for enhancing the high visibility of Islamic banking products and services in the domestic market. They also discussed the obstacles that inhibit the growth of Islamic banking industry, as well the measures that are deemed necessary for spreading the culture and concept of the Islamic banking business. The sessions also discussed the prospects for Islamic capital markets in general, the establishment of Islamic securities market in

the Sultanate, marketing of, and investment in Sharia-compliant shares and assets, the opportunities available for starting the issuance of Islamic Sukuk, and the role of Islamic Government Bonds as standard indicators. Other issues brought forward included the challenges facing Sharia Regulatory Boards and the difficulties that limit setting up of Sharia rules and applications under the current civil laws and a conventional banking system. They also included dealing with the varying Fiqh (Islamic jurisprudence) standards and practices, creating innovative financial products within Sharia constraints, and the lack of financial and banking expertise among a large number of Sharia scholars.

society to turn out to be customers of these banks and create effective systems that ensure raising public awareness about Islamic banks, Islamic transactions and Islamic products and services. The concluding statement also asked Islamic banks to maintain sound Islamic approach in all regulatory, supervisory and operational aspects of the Islamic banking industry in order to avoid exposure to the adverse effects of the fluctuations in the global economy. It further urged banks to implement the Basel III standards on capital adequacy and strengthen their capital base, besides also urging them to adopt sufficient transparency measures and ensure compliance with international banking rules and best standards.

The conference concluded by expressing confidence that the experience of applying the Islamic banking system in the Sultanate would be one of the most successful contemporary experiences in this regard. The joint communiqué issued by the conference explained that this was due to the nature of the Omani Muslim community and the existence of an efficient Central Bank that spared no effort in providing the necessary technical and legal environment that encouraged the growth of Islamic banking in the country. It was also due to the ability of Islamic banks to structure and offer high quality and efficient financial products and services.

The concluding statement recommended paying greater attention to the development and support of training plans and programmes for employees. It urged banks to adopt a carefully designed systematic and scientific approach for tackling urgent and constant demands for the development of human resources especially in the aspects related to fatwas issued on the Islamic banking and finance industry. It also urged Islamic banks to work tirelessly to develop and create new Sharia-compliant products and services that meet the requirements of the financial system and the local economy. Finally, yet importantly, the statement stressed the significance of the contribution of Islamic banks and financial institutions, together with regulatory authorities, in spreading awareness and knowledge among the public regarding the nature of Islamic financial products and the differences that distinguish them from the conventional ones, as well as enhancing the interrelationship between Islamic finance systems and the real economy.

In the joint communiqué, participants urged Islamic banks to play an important role in supporting productivity by promoting growth opportunities, particularly for small and medium enterprises (SMEs). Likewise, they urged Islamic banks to help in stimulating capital, thus encouraging large segments of the Omani

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Foreign Exchange Reserve Management: A Conceptual Overview By:Abdelhamid Merghit Faculty of economics commerce and management Mohamed Seddik Benyahia –jijel University, Algeria

This article presents a brief exposition and includes some basic concepts of foreign exchange reserves, the risks associated with reserves management and measures for assessing the adequacy of reserves. The definition of Official foreign exchange reserves According to the international monetary fund, the Official foreign exchange reserves“are those external assets that are readily available to and controlled by monetary authorities for direct financing of payments imbalances, for indirectly regulating the magnitudes of such imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes” [1]. It is worth noting that the official foreign exchange reserves include foreign currency assets and gold, this 12

later must be held by the monetary authorities as monetary gold to be recognized as part of official reserves. Furthermore, these reserves are held to exercise the basic function as shock absorbers in order to support and maintain confidence in the monetary and exchange rate policies, including the capacity to intervene in support of the national currency [2] Moreover be Reserve management policy can be defined as“the process by which public sector assets are managed in a manner that provides for the ready availability of funds, the prudent management of risks, and the generation of reasonable return on

the funds invested” [1]. Foreign exchange investment categories:-

reserves

Usually, the central banks laws define the investment policy of these reserves, and permits the following investment categories: [2-3] - deposits with other central banks and the Bank for International Settlements; - deposits with foreign commercial banks; - Investments in bonds/treasury bills, which represent debt obligations of highly rated sovereigns and supranational entities; - Dealing in certain derivatives. ; and

types

of

- Other instruments / institutions as approved by the Board of the central Bank In the majority of countries, the preservation of the long- term value of the reserves in terms of purchasing

power and the need to minimize risk and volatility in returns, are the main principles governing the foreign reserves management. The most important risks associated with managing foreign exchange reserves:The word Risk means the possibility of financial or other losses arising from an entity’s financial exposures and/or the failure of its internal control systems. So, there should be a framework that identifies and assesses the risks of reserve management operations and that allows the management of risks within acceptable parameters and levels. [1] The risk management functions are aimed at ensuring development of sound governance structure in line with the best international practices, improved accountability, a culture of risk awareness across all operations and efficient allocation of resources for development of in-house skills and expertise.Typically, official foreign exchange reserves are faced with a 13

range of risks including [3] :

international reserves.

a. Credit risk

b.2.Interest Rate Risk: The crucial aspect of the management of interest rate risk is to protect the value of the investments as much as possible from the adverse impact of the interest rate movements. This risk involves the adverse effects of increases in market yields that reduce the present value of fixed interest investments in the reserve portfolio.

Credit risk is defined as the potential that a borrower or counterparty will fail to meet its obligation (loans or other financial assets) in accordance with agreed terms. The investment of foreign exchange reserves in bonds/ treasury bills or Placement of deposit with Bank for International Settlements is also considered credit risk-free. Credit risk has been in focus since the onset of the credit crisis in the US financial markets and its contagion effect on other economies leading to global financial crisis during the second half of 2008 and during 2009. b. Market risk Market risk arises on account of exchange rate and interest rate movements. b.1.Currency Risk: Currency risk arises due to uncertainty in exchange rates. It also arises with an appreciation of the domestic currency which could reduce the domestic currency value of 14

C. Liquidity Risk Liquidity risk involves the risk of not being able to sell an instrument or close a position when required without facing significant costs. In other words it refers to the possible difficulties in selling large amounts of assets quickly, in a situation where market conditions are also unfavorable, resulting in adverse price movements. A highly liquid portfolio is a necessary constraint in the investment strategy because reserves need to maintain a high level of liquidity at all times in order to be able to meet any unforeseen and emergency needs.

d. Operational Risk A range of different types of risks, arising from inadequacies, failures, or nonobservance of internal controls and procedures that threaten the integrity and operation of business systems[1]. This risk includes: the risk of the collapse of the internal control systems, risk of financial mistakes.... Adequacy of Reserves To make sure that the current levels of international reserves are still comfortable and safe, there are four applicable measures for assessing the adequacy of reserves [4]  : - The traditional measure of import covers of reserves. The optimal level is about three months at least. - The ratio of money supply to the foreign exchange reserves. The optimal level is at least 20%. - The ratio of short-term debt to the foreign exchange reserves. The optimal level is at least 150%. - Foreign exchange reserves should exceed at least the non-resident

deposits in foreign currencies, in the banking system. Referances [1] International monetary fund.(2004). Guidelines for Foreign Exchange Reserve Management. Washington, DC: International monetary fund. [2]  Mudher, M. S.(2009,June). Official foreign exchange reserves management tasks and the national economic security. Iraq Central Bank working paper. (Original work published in arabic) [3] Reserve Bank of India.(2009). Half Yearly Report on Management of Foreign Exchange Reserves April – September. Department of External Investments and Operations, Central Office , Mumbai. [4]  International Monetary Fund. (2000). Debt- and ReserveRelated Indicators of External Vulnerability, Retrieved from http://www.imf.org/external/np/ pdr/debtres/index.html

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Host of Opportunities and Cha

llenges in Prospect

for Islamic Banking in the Sultanate of O

man

By: Samah Al-Lawati

[email protected]

Islamic banks and financial institutions around the globe have not only managed to achieve widespread popularity in the economic arena, but also have recorded major growth and development in record time despite its humble beginnings (average annual growth over the past five years was 19%). This grabbed the attention of many investors, who were earlier reluctant to venture into these kinds of financial institutions. Additionally, it has also managed to attract capital and foreign investments to what was previously perceived as a financial risk. Several economic reports (notably the Ernst & Young world Islamic Banking Competitveness Report launched in 19 December 2012) indicate that the volume of global Islamic banking assets amounted to about $ 1.5 trillion during 2012 compared to assets of $ 1.3 trillion during the year 2011. The report also predicted that the volume of global Islamic banking assets will exceed the $ 2 trillion mark in 2015.

It is no surprise that the Sultanate followed suit by launching Islamic banking activities immediately after His Majesty Sultan Qaboos bin Said issued Royal Decree No. (69/2012) on 6 December 2012, promulgating amendments to a number of provisions of the Omani Banking Law issued by Royal Decree No. (114/2000). The most significant amendment was granting license to practice Islamic banking activities by

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Islamic banks or specialized independent windows for Islamic banking in the licensed commercial banks. With this move, the Omani banking sector has entered new horizons alongside being a witness to numerous other developments achieved in the domestic banking market recently, such as opening the door to foreign investments. This Royal Decree forms another incentive for the banking sector in the Sultanate in light of the giant leap taken by Islamic banks and windows in commercial banks worldwide despite its recent advent a few years ago. Islamic financial institutions have proven their worth and strength by staying immune to global financial market corrections and fluctuations unlike the commercial banks that couldn’t cope up with the global economic crisis resulting in bankruptcy of some of the world’s strongest banks. Many economists around the world are confident that Islamic financial institutions have become a safer alternative to commercial banks due to their firm assets and cautious funding unlike the latter that depended on excessive borrowing, lending and investment in order to achieve a quick profit without paying attention to the long-term risks. $445 Billion in Assets for Islamic Banks in the GCC Some banking reports, including the abovementioned Ernst & Young report, show that Islamic banks in the GCC in particular have excelled in growth over its commercial counterparts. Shariacompliant assets in commercial banks of the six GCC States were estimated at $ 445 billion by the end of 2012, an annual increase rate of 14%, compared to the annual asset growth of 8% by commercial banks. It was also reported

that Islamic financial institutions accounted for about a quarter of the banking sector in the region. Moreover, the E&Y report foresaw a positive outlook for Islamic banks in GCC States, relying on estimates that the assets of Islamic banks in Qatar increased by more than 23% in 2012, and that the volume of sold Islamic bonds was at $ 11 billion in the UAE alone during the past three years. On the other hand, the World Bank expected in a report that the value of global Islamic finance will reach about $ 700 billion, the majority of which will originate from GCC States. The GCC Region is not the only part of the world that saw major development in the field of Islamic finance. Evidence indicates that some countries in Asia and the European continent have experienced a surge in the application of Sharia-compliant financial operations. The most prominent example in the Islamic World is Indonesia, which houses approximately 1,400 Islamic financial institutions and 242 Islamic finance societies, with a growth rate of 30%. Examples of Islamic banks sweeping Europe is their financial capacity which is currently estimated at $ 800 billion, not to mention France’s recent announcement on its efforts to establish a new European center for Islamic finance, which will make it the capital of Islamic finance in Europe and create an Islamic finance market worth $ 144 billion. In addition, there are 20 banks providing Islamic financial services in Britain alone, outweighing other Western countries in the number of Islamic financial institutions, apart from London’s recent announcement to issue $ 4 billion worth of Islamic bonds. The Western World’s Interest in Applying the Islamic Financial System Some of us might wonder why the

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Western World is so enthusiastic to apply a financial system that is associated in their minds - with a strict religion and at a time when Islam and Muslims are subjected to discrimination campaigns. The answer lies with the Europeans themselves. Finance and economy experts from Europe explain that many factors have contributed to the success of the Islamic banking system in Europe, most notably forbidding the application of “Riba” (usury/exploitive increment on a loan or debt). Instead, all Islamic banking transactions are built on the basis of buying and selling of tangible goods and services rather than funds or financial dues that are far from realistic transactions. Figures in Islamic banking transactions match reality, meaning that the money spent on the purchase and sale of goods and services is real hard cash. In addition, it is forbidden under Islamic Sharia Law to invest in the trade of alcohol, gambling and any activities that contradict Islamic values, especially with the spread of Muslim communities in European countries and the existing legal systems that give financial and business freedom to European residents to deal with the economic tools they deem appropriate. Moreover, the global financial crisis and the bankruptcy of commercial banks contributed in uniting opinions on the need to change the current economic policy through the application of a reliable economic system. Due to the confidence in the ability of Islamic economics to solve the global financial crisis, Muslims in Europe are now heading more than ever to Islamic banks and financial institutions, as reports show that Islamic Economy is operating in more than 50 countries around the world. Islamic banks have succeeded in the

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development of products based on the principles of Sharia and have become a target for global investments. This has also encouraged European countries to offer “Sukuk” (Islamic bonds) to provide the necessary liquidity to fund some of their projects. Many economists affirm that Islamic finance institutions have directly contributed to the recovery of the economy on the Arabian and international levels, considering that one of their main goals is to engage in investment projects according to the development priorities of the country they operate in. For example, Islamic banks contribute in funding agricultural and service projects - such as health and education – as well as industrial projects that increase the productive capacity of communities. Challenges and Solutions Despite of the massive profits generated by the Islamic banks and Islamic windows in commercial banks, it is no surprise that this success, which was achieved in record time, will face some challenges and obstacles that officials in this sector must address. According to studies published recently in this regard, the most prominent of these challenges include: 1)Lack of properly trained and qualified human resources to work in the Islamic banking sector, especially in leadership and Sharia advisory. Banks are in need of these kinds of specialties, not to mention that the banking sector faces a shortage in offers in this respect. 2) The inability of Islamic banks to be innovative and their tendency to copy, imitate and emulate the products of commercial banks and direct their services towards specific sectors, such as focusing on real estate and vehicles, rather than introducing new and promising products, reflect its inability to manage liquidity and poor performance.

3)  Differences in the legislative, accountancy and legal frameworks that play a significant role in the longterm stability of the Islamic banking industry. Lack of standardization and calibration of this sector’s legislations adversely affect the competitive factor, especially in light of the growing competition in the context of market liberalization. 4)The need to develop systems based on the principles of strict disclosure and compliance with corporate governance standards within the Islamic financial institutions and strengthen their relationship with customers as they are distinguished by the property of profit sharing, and therefore are more important than commercial banks. For example, employees of Islamic banks should apply the principle of transparency in dealing with their customers as an urgent necessity and must clearly inform them about the nature of investments they wish to venture in, the potential risks and expenses, the method of calculating profits and so on. 5) Decelerating growth and erosion of profitability. Growth rates in some of the major geographic regions have declined. This was accompanied by a rise in the cost/income ratio in most markets, which puts pressure on profitability in view of the fact that

Islamic banks imitate the products and services offered by their commercial counterparts and are underdeveloped. 6) The diversity of risks in the banking business environment, including contractual, external and economic environment, international investments and self-structure risks, which is normal because investment is always linked to risk. 7)The need for tax laws to keep abreast with the work requirements of Islamic banks - particularly in Europe – which can sometimes impede the operations of some Islamic financial institutions 8)The latest global financial crisis that hit the markets hard and its impacts are still lingering to this day. Currently, there is a sense of instability in global economies as well as in the political scene, which casts doubt on the estimates issued regarding the financial and banking sectors. Hence, it is imperative that all Islamic banks and financial institutions join hands and collaborate with the regulatory and supervisory entities, such as central banks and “Fatwa” centers (Islamic rulings), to enhance the performance of Islamic banks and financial institutions worldwide and maintain the success they have achieved so far as well as to overcome the above obstacles and challenges. This can be accomplished through the following: Providing the appropriate legislative • environment to ensure the presence of a regulatory and supervisory system that is able to positively contribute to achieving the objectives of Islamic banks. • Creating an effective system dedicated to enhancing public awareness on Islamic banking transactions. Such system will certainly contribute in increasing the level of awareness whilst creating an additional incentive for banks to improve the quality of their services and products. This can

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be achieved through social networking sites, the Internet and cutting-edge communication technologies, which have become the most popular tool for news circulation. • Learning lessons from Islamic financial institutions that directed the lion’s share of investments on the real estate sector without considering the fact that the economy inherently goes through periods of prosperity offset by periods of decline or stability. • D i v e r s i f y i n g p r o fi t a b l e banking products and introducing new, competitive services that attract customers to avoid being caught in the web of imitating all products offered by commercial banks and maintain investors’ confidence in the Islamic financial system. • Strengthening capital and resources by expanding financial liquidity management funds for this relatively new industry. •Implementing Basel III (the 3rd Basel Accord) rules that aim at strengthening bank capital requirements to dodge the impact of financial crises and achieve financial stability in the long term. This can be easily achieved by Islamic banks for many reasons; most notably the fact that their operations depend mainly on the principle of profit and loss sharing in realistic products, not loans. •Complying with corporate governance standards and the principles of integrity, transparency, fairness, solidarity and participation in practice.

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Prospects for Islamic Banking in the Sultanate During the Oman Second Islamic Banking and Finance Conference organized by Lebanon’s Al-Iktissad Wal A’amal Group in collaboration with the Central Bank of Oman and held in March 2013, participants affirmed that the Sultanate’s Islamic banking experience is commendable, although still in its infancy, since CBO’s announcement to grant license for the establishment of banks and windows that operate under the rules of Islamic Sharia Law was done very recently. Islamic finance in Oman is among a few experiences that deserve recognition and praise because it is built on clearcut principles of developing a solid organizational structure and providing a sound legislative setting under a regulatory and supervisory system that is capable of contributing to support the desired financial stability. The participants also predicted that this experience will be one of the most successful modern-day applications based on many factors, most notably the nature of the Muslim Omani society. Studies indicate that 85% of Omani consumers are willing to purchase Islamic finance products and about 70% of them look forward to setting up Islamic savings accounts. Another factor at play is the presence of the Central Bank of Oman, an institution dedicated to providing the legislative and technical environment necessary for the growth and prosperity of Islamic banking in the Sultanate, with a history of banking services spanning 30 years. Furthermore, Islamic banks have the ability to create and offer new,

competitive products and services, especially in terms of cost, which is considered by the banking sector as a critical aspect in a highly competitive market. Finally, Omani investors have shown interest in establishing Islamic banks with a large capital base, which was already implemented by some of the Omani banks in the country who have welcomed the idea of investments from other Omani investors. On the other hand, participants pointed out that the Sultanate is looking forward to reap ample economic and financial benefits by establishing Islamic banks whose mantra is to venture in investments related to the real economy. Therefore, hopes are high for Islamic banks to play a vital role in enhancing the infrastructure, supporting economic productivity and boosting growth opportunities for small and medium enterprises in the Sultanate. SMEs are particularly important due to their promising potential in advancing the economic development process and its ability to positively contribute in many aspects, specifically creating jobs and improving the standards of living for a larger section of the Omani society. Islamic banks are also expected to attract

back migrating funds that remained outside the conventional banking market because their owners were keen to invest in Islamic banks. Moreover, the entry of Islamic banks in the picture will contribute in attracting more customers to the banking sector and ultimately increase the rate of national savings in the long run. This step is vital because large segments of society are reluctant to take loans from commercial banks, which was the case in Turkey. A study conducted by a consulting firm showed that over 50% of the Turkish population does not deal with riba-based banks. Last but not least, assets of the Islamic banking sector in Oman are expected to reach a volume of $ 6 to 8 billion during the next five years and take up a market share of 8% to 10% of the overall Omani market (the current total capital of Islamic banking in the Sultanate is R.O. 500 million, or $ 1.3 billion). Cautious Optimism Commercial banks operating in the Sultanate have managed to avoid the negative repercussions of the global financial crisis thanks to the control procedures effectively taken by the Central Bank of Oman. In addition, the Omani banking sector has seen a marked improvement over the past years and made acceptable profits, according to the financial sector performance evaluation conducted by the both the International Monetary Fund and the World Bank. Hence, there is cautious optimism that over the next five years Islamic banks and windows can achieve the same kind of tangible success in Oman on par with the commercial banks in the country during the past four decades.

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Food Security on the GCC Table of Discussions:

Urgent Action is required to Find Necessary Solu Prepared by: Nasra Al-Hina’iya

The Arab World in general and the GCC States in particular are facing a real shortage in food supply, to an extent that the crisis has reached the level of famine in some Arab countries. This is in addition to the increase in the number of Arab citizens who are living below the poverty line. This state of affairs certainly calls for the governments and the leaders of GCC States to take some immediate and urgent action and find effective solutions to avert this crisis from affecting the people of the region This report addresses the issue of food security and the efforts being made at the GCC and Arab region levels. It also tries to study the reasons behind the food gaps, the role of the Sultanate in achieving food security and a few other proposals to solve the food gap issue. What is Food Security? Food security refers to the ability of countries to secure the needs of their citizens as far as food is concerned and ensure its sustained availability for

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generations by providing a stock of basic foodstuffs to resort to in the event of crises and natural disasters when food production is low or difficult access to food supplies imported from abroad. The food gap, on the other hand, refers to the difference between the amount of local food production and the amount needed to meet demands. In other words, to achieve food security, countries must balance between the amount of food that they can provide for their population and the size of demand for it, so that demand does not exceed supply.

utions for Achieving Sustainable Food Security Global Food Security According to the 2012 Report (The State of Food Insecurity in the World 2012) issued by the United Nations Food and Agriculture Organization (FAO), the number of hungry people around the world is still unacceptably high, and nearly 870 million people are suffering from chronic undernourishment malnutrition in 20102012, mostly those living in developing countries. During the United Nations Conference on Sustainable Development (Rio +20), held in June 2012 and known as the “Earth Summit”, the discussions included a range of economically significant themes, notably: “Towards Sustainable Agriculture and a World Free of Hunger”, which was top priority on the agenda of this important international conference. Mr. Ban Ki-moon - the Secretary-General of the United Nations – launched a “Zero Hunger Challenge” during the conference, calling upon all nations to put an end to global hunger. Food Security in GCC States Food security has become an issue of major concern to GCC States, where demand for food is growing and creating a big challenge for the governments of these countries. The agricultural sector’s contribution to the GDP of GCC States is very minimal due to the scarcity of water resources. According to FAO, only 1.4% of the Region’s lands are arable. A report published by Alpen Capital

Group, a leading investment bank shows that, GCC States imported food commodities valued at $ 25.8 billion US dollars in 2010, amid expectations that the figure will double to $53.1 billion US dollars in 2020. The growing demand of food in the Gulf Region is the result of a growing population and rising living standards. The report adds that the GCC population is expected to grow from 40.6 million in 2010 to 50 million in 2020. The report also says that GCC States depend heavily on food imports to meet their food demands. For example, imports cover 80% of UAE’s meat consumption, 84% of dairy and milk and 63% of vegetables, while Qatar imports 93% of milk and dairy products, 80% of vegetables and 99% of grains. Food Security in the Sultanate of Oman According to the “Agricultural and Fishery Statistical Yearbook 2011”, farmed areas amount to (1,386,556 acres), and most farms are concentrated in the Governorates of Al-Batinah and Dhofar, followed by the oases and valleys scattered in the Interior Governorate. The main agricultural products in the Sultanate are fruits and palm trees. Estimates show that (262,928 tons) of dates were locally produced in 2011 across all the Omani governorates. Vegetable farms are spread across an area of (14,982 acres) with production volume of (202,447 tons). On the topic of fish production, the Sultanate’s fish exports in 2011 amounted to 59% of

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the total fish production, or approximately 94,000 tons worth a total value of RO 64.8 million (for various types of fish, including lobster, shrimps, kingfish, grouper, long-tail tuna, yellow-fin tuna, tuna and shark fins). Sardines are also frequently dried to be used as a livestock feed. Reasons for the Widening Food Gap Some perceive that the main reason behind

States to preserve water resources, numerous conferences were organized, the latest was the 10th Gulf Water Conference held in Doha, Qatar, on April 22-24, 2012 under the theme “Water in the GCC States: WaterEnergy-Food Nexus”. The outcome report of the Conference stated that the agricultural sector in GCC States consumes more than 80% of the total water resources being used and

The following table shows figures of local production of some animal products in the Sultanate:

Domestic production (1000 tons) of some animal products Product Name

2009

2010

2011

Red meat

13.26

24.00

24.48

Poultry meat

21.00

42.10

41.40

Fresh milk

49.57

69.60

70.99

187

183

213

Eggs (million)

Source: Agricultural and Fishery Statistical Yearbook of 2011. the widening food gap in Arab countries in general and the GCC Region in particular is the decline in agricultural production, which is attributed to several reasons: 1). Lack of arable lands: GCC States are short on areas suitable for farming due to the dry desert climate, which is incompatible with agricultural crops. In addition, a number of agricultural areas have been appropriated for the establishment of construction projects. 2).  Scarcity of water resources: Due to the rising global food prices, many countries have increased their agricultural production, which in turn put pressure on the use of fresh water and eventually caused its shortage. Among the efforts made by GCC

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more than 90% of groundwater. The issue of water shortage is expected to be aggravated by the projected impact of global climate change phenomenon that triggers a change in climate systems, an increase in evaporation rates and ultimately a rise in extraordinary climatic occurrences. 3). D  rop in the quality provision of production supplies: This includes the provision of sufficient varieties of improved seeds and fertilizers necessary for sustainable agricultural production. Climate Change Climate change (such as global warming, floods and drought) is closely linked to the issues of shortage in water and food

supplies, which has adverse impacts on agricultural and livestock production. The most famous examples of the decline in crop production include: droughts in grain-growing farms in the United States and Russia and the political unrest in the Middle East that destroyed some areas of agricultural production. In order to contain the food crisis in a continuously changing climate, GCC States made countless efforts to search for new mechanisms that study the possibility of identifying specifications of basic food commodities along with the suitable areas for establishing manufacturing and storage projects where, especially since these are countries with high value of food imports. GCC States have also sought to enhance the development of livestock production and building agricultural lands or productive fields abroad to serve as a long-term agricultural investment. Import and Export Policies Dependence on Fossil Fuels

and

The economic policies of GCC States depend on the import and consumption of fossil fuels (oil, natural gas) as opposed to low productivity of agricultural resources. Despite diligent efforts made by these countries to reduce the risk of food gap, there is no way to predict its end during the upcoming years. High Population Density: The GCC Region is witnessing a steady growth in population as a result of increased labor inflows to its countries, which ultimately puts pressure on food commodities and increases demand for foodstuff. The Sultanate’s Efforts to Achieve Food Security:   Oman has been keen to enhance food security by focusing on the following main activities:

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1. Participating with stakeholder in activities that address this issue, working on social protection and food security as a way of tackling climate change, contributing in regional priority issues to achieve food security and nutrition in the context of the ongoing social and political transformation in the region, making use of food waste, establishing regular links between regional food security and food initiatives and reforming the Committee on World Food Security. 2.  Agricultural Census Project (to develop the agricultural sector): The Ministry of Agriculture and Fisheries is currently operating the Agricultural Census Project along with developing and enhancing the agricultural sector (agriculture and livestock) through awareness and service projects that aim at improving agricultural crops and protecting and immunizing livestock. In addition, MAF is keen to increase agricultural production and reduce its 26

costs and therefore enhance proceeds for local farmers and livestock breeders and improve their standards of living. 3. Establishing and organizing wholesale and retail markets for food commodities and fish markets and preparing standard regulations for all markets in the Sultanate. 4.  Launching the Aquaculture Project in 2003: It aims at creating suitable environments for the propagation of certain species of fish and ensuring their availability in the market in an abundant and permanent manner as well as exporting the surplus abroad. 5.  Establishing the Department of Rural Women: Guided by the wise government’s strong belief in the significant role of Omani rural women in enhancing food security in the Sultanate, the Ministry of Agriculture and Fisheries established the Department of Rural Women in 1996. Its oversight includes enhancing

the role of women in achieving the goal of food security, developing a national plan for the advancement of rural women and combating illiteracy in rural areas in order to strengthen and develop the capabilities and skills of young girls. It also endeavors to encourage them to come up with good ideas and encourage them to take up activities such as poultry farming, beekeeping and vegetable and livestock production increasingly. 6.  The Ministry of Commerce and Industry formed the “Food Security Committee” under Ministerial Decision No. 37/2009, issued in April 2009. Members of the Committee include ministries and departments concerned with food security. Its specialties have been identified to include developing a long-term strategy to achieve food security in the Sultanate. 7. Signing of an agreement with the Organization of the United Nations Conference on Trade and Development

(UNCTAD) at the conclusion of Oman Second Economic Forum 2010 was also a tangible achievement in this regard. The agreement envisaged conducting a study on the fundamentals and opportunities for foreign investment in agriculture and identifying potential countries for Omani investments. 8. The Ministry of Commerce and Industry signed a contract with TAME – a Greek agro-engineering company – on March 5th, 2011, to act as consultants for the design and construction of wheat silos in Sohar and Salalah as the Sultanate steps up its food security measures. 9.  Enhancing the role of regulatory authorities, such as the Public Authority for Consumer Protection and the Public Authority for Stores and Food Reserves in order to keep prices of food products under control and ensure their sustainability. 10. Making preparations for establishing

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a center for animal and plant genetic resources: The Research Center has developed the necessary plans to establish a center of animal and plant genetic resources in accordance with the Royal Directives to preserve the genetic diversity of the Sultanate. The aim of this center is to promote the sustainable use of genetic resources and to increase awareness of the importance of genetic diversity inherent in animals, plants and microorganisms, which will contribute to the development of human capacity and provide a decent life for citizens through the achievement of food security and other economic benefits. Recommendations: To achieve sustainable food security in the GCC Region, the following is recommended: 1.  All GCC States shall own a broad base of food reserves to act as a safety net in the event of sudden increase in prices or disruption of food supplies, and in order to ensure the availability of food commodities in the market on a permanent basis. 2. Prices of commodities shall be affordable to all segments of society. In addition, it is imperative to develop an appropriate mechanism limiting the effects of

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price volatility and the resulting blow to the poor in rural and urban areas. These mechanisms are well-targeted and are flexible enough to expand in emergencies to ensure they reach the affected communities who deserve support and assistance, and to ensure financial viability in the long term. 3. The scale of investment in the field of agriculture and livestock shall be expanded in order to improve production, with the need to follow the right approach, which aims at creating a proper infrastructure that encourages the investment process. These include enhancing the efficiency of water use and irrigation supply to facilitate crop production of high value and quality, and thus achieve the primary goal of a thriving rural business environment. 4. The role of economic growth in reducing food shortage should be noted. Most of the poor who suffer from hunger live in rural areas and depend on agriculture as a large part of their lives. Therefore, effective sustainable agricultural growth is often effective in reaching these communities and the eradicating poverty. 5.  A clear agricultural policy shall be developed to fight “Urban replacement” and real estate investment at the expense of the agricultural sector.

The College of Banking and Financial Studies celebrates The Graduation of a New Batch of Bachelor`s and Diploma Graduates His Excellency Abdullah bin Salim Al-Salmi, the Executive President of the Capital Market Authority, presided over the graduation ceremony of a new batch of Bachelor’s Degree and Diploma graduates from the College of Banking and Financial Studies. The ceremony was recently held at Al-Bustan Palace Hotel, Majan Hall, in the presence of His Excellency Hamood bin Sangour Al-Zadjali, the Executive President of the Central Bank of Oman, Professor Kevin Barber, Acting Deputy Dean of the University of Bradford in the United Kingdom and Mr. Ali bin Hamdan Al-Raisi, Chairman of CBFS Board of Directors. Other attendees included a group of Their Excellencies, members of CBFS Board of Directors, CEOs and GMs of local commercial banks, families of the students and CBFS academic and administrative faculties. The ceremony started with the procession of CBFS academic faculty, followed by the keynote speech delivered by Mr. Anees bin Moosa Al-Lawati, Acting Dean of CBFS,for this occasion as he welcomed the new batch of CBFS Bachelor’s and Diploma graduates from various disciplines. He congratulated the students for obtaining their academic degrees, pointing out that this kind of achievement is realized after overcoming many challenges, which is truly commendable. I am proud of this accomplished success that will indeed contribute in the advancement of our beloved Oman guided by the wise leadership of His Majesty Sultan Qaboos bin Said.” Mr.

Anees stated. He also congratulated the graduates’ families who expressed their delight of being present at the ceremony. During his speech, Mr. Anees added that CBFS has held on to the tradition of organizing this ceremony for graduates on an annual basis in recognition of their efforts and achievements, pointing out that the number of graduates this year reached 392 graduates; 50 received a Bachelor’s Degree and 342 a Diploma in various disciplines. He also pointed out that since its establishment in 1983, CBFS has been operating under the supervision of the Central Bank of Oman and 29

the ceremony, handed out certificates to the 392 graduates.

has become accustomed to graduating highlyqualified manpower, especially in banking and financial disciplines, thereby implementing the Omanization policy within the financial sector. In addition, CBFS offers many programs in Accounting, Finance, Information Technology and Management, and the number of enrolled students for the academic year 2012/2013 exceeded 1,700 students, male and female. Mr. Anees concluded his speech by extending his sincere wishes to the graduates for a bright future and success in their career of choice. The following speech for this occasion was delivered by Professor Kevin Barber, the Acting Deputy Dean of the University of Bradford his speech, in which he praised the graduates and commended their academic performance, affirming that they possess distinctive competencies. After the speech, His Excellency Abdullah bin Salim Al-Salmi, the Executive President of CMA and patron of 30

This was followed by a speech delivered by Ms. Ameera bint Said Al-Bahri, a Bachelor’s Degree graduate, in which she expressed her gratitude and appreciation to all in attendance for sharing her joy and that of her fellow graduates. She said “I am proud to be standing here today and delivering this speech on behalf of myself and my fellow graduates of batch 2012. It is a real challenge for me to be standing up here and speaking on behalf of my fellow graduates and expressing our joy on this big day. And although our meetings were on a daily basis and revolved around the same activities, the whole journey was exciting and wonderful to say the least. The amazing attitude of my fellow students helped me get through every little detail of this journey, and this is why we all stand here today to celebrate the fruits of our labor on this memorable day”. She added that none of this would have been possible without the support and assistance provided by CBFS lecturers and faculty members, starting with the Dean down to the employees with the most humble jobs. She added “I would like to avail this opportunity to express my gratitude and appreciation to all CBFS staff members - lecturers and administrators. To them I say: Thank you for your continuous support and for standing by us and always making sure we overcome the difficulties we have encountered during the course of our study. She also thanked, Professor Kevin Barber, Acting Deputy Dean and representative of the University of Bradford, and everyone who played a role in this success from family members and friends who provided their support and turned this dream into reality and a solid foundation for remarkable future achievements. At the end of the ceremony, commemorative gifts were presented to His Excellency the Executive President of CMA, patron of the ceremony, and to His Excellency the Executive President of CBO, then group photos of the graduates with His Excellency the chief guest of the ceremony were taken to commemorate this event.