Muscat: Islamic banking assets in Oman reached OMR9.8 billion by the end of May 2026, a rise of 9.2% year on year, and the sector now holds close to 19% of total banking assets in the Sultanate, says an industry watcher.
Financing extended by Islamic banks and windows stood at OMR7.9 billion, up 10.5%, while deposits grew 11% to OMR7.8 billion. By the end of June, total Islamic lending had crossed OMR8 billion, said Sayed A., Chief Business Officer, Global Business, Graystone Capital.
“Just as important, the quality is sound. The sector posted quarterly profits of more than OMR23 million with a non performing financing ratio of 3.3%. This is a sector that has grown quickly without compromising discipline, which is not easy to achieve,” he added.
Oman licensed Islamic banking only in 2011, and reaching a fifth of the banking system within 15 years is a remarkable achievement by any global measure. Fitch expects the industry to exceed $45 billion in 2026, against roughly $36 billion at the end of 2025.
Sayed further said that the challenges are honest ones. The sector is still building scale, the Islamic money market needs greater depth, and the domestic sukuk market must mature further to give institutions proper liquidity management tools. “The Central Bank of Oman (CBO) is addressing all three, through Wakalah certificates of deposit, Islamic treasury bills and a clear push to develop the sukuk market,” he added.
The consolidation now under way, including the proposed combination of Bank Nizwa and Alizz Islamic Bank, points towards fewer but significantly stronger institutions. That is exactly what the next phase requires.
When asked whether local entrepreneurs and SMEs are finding it difficult to obtain financing from conventional banks, Sayed said the data tells the story clearly. “Oman has more than 267,000 registered small and medium enterprises (SMEs), yet SME lending accounts for roughly 3.7% of total bank credit, below the 5% guideline set by the CBO,” he pointed out.
This is not a failure of the banking system, which has remained resilient through some very testing global cycles, he said.
It reflects how conventional credit is structured. Assessment relies heavily on collateral, and small firms are frequently asked to pledge assets worth well beyond the value of the facility itself. A profitable young company with contracts, customers and cash flow but no property to offer simply does not fit the template.
The consequence is that viable businesses stall, not because the economics fail, but because the security does not.
When asked whether the Islamic banking sector can help overcome this problem, Sayed said, “This is where Islamic finance holds a genuine structural advantage, and I do not say that as a matter of preference. Islamic contracts are built around assets and real economic activity rather than around lending against security.”
Murabaha finances inventory and raw materials, with the goods themselves forming part of the structure. Ijarah funds equipment and vehicles, where the asset provides the comfort. Wakalah supports working capital. Salam and Istisna’a suit manufacturers and contractors who need funding against future production or delivery. Diminishing Musharaka allows a bank to enter as a partner and progressively exit as the business grows. Look at what these structures do. They shift the conversation from what a business owns to what a business actually does. For the SME sector, that distinction is transformative.
Elaborating about the significant structural hurdles faced by businesses and SMEs, he said, four stand out in our work across the region.
Collateral dependency remains the biggest, and it disqualifies capable companies at the first hurdle. Second is informality, where personal and business finances are mixed and accounts are not current, leaving a financier unable to assess true performance. Third is awareness. Many owners still do not know which Sharia-compliant structures exist or which one suits their situation, and awareness of Islamic products among Omani SMEs remains lower than it should be. Fourth is the economics of small ticket financing, where the cost of assessing a modest facility is nearly the same as a large one.
“Each of these is solvable. Credit guarantee mechanisms, cash flow based scoring and digital invoicing data all reduce collateral dependency directly, and they are the direction the market is taking,” Sayed further added.
Speaking about digital frontier help the Islamic banking sector, he said that digital capability solves the small ticket problem, which is the single biggest barrier to SME financing anywhere in the world. When onboarding, verification, credit scoring and documentation move onto a properly designed platform, a financier can approve a OMR40,000 facility profitably and in days rather than weeks.
Oman has already laid the groundwork. The Central Bank’s digital banking framework opened the way for fully digital institutions, including Islamic ones, and the fintech sandbox operated jointly with the Financial Services Authority allows new models to be tested safely.
Alternative data matters here too. Payment histories, invoicing records and transaction flows tell a far more accurate story about a young company than a property deed ever will. Combine that data with Sharia-compliant structures and you reach businesses no traditional model could serve.
When asked about how Islamic financing can emerge as the backbone of Oman’s future economy, he said, “It can, and I believe it will become one of the central pillars.”
Consider the alignment. Oman Vision 2040 is built on diversification, productive investment and private sector employment. Islamic finance, by its very nature, must attach to real assets and real activity. It cannot exist in abstraction. A financing philosophy rooted in tangible economic value is precisely what a diversifying economy requires.
Sayed further said that the foundations are already in place. The Central Bank’s framework for Shariah compliant finance and leasing companies has widened the field beyond banks.
The windows conversion framework charts a phased path towards stronger standalone institutions through 2030. Sovereign sukuk issuance, including the landmark $1 billion transaction, has built a pricing benchmark, and corporate issuers such as Oman Electricity Transmission Company have followed with green sukuk.
Globally, Islamic financial assets stand near $5 trillion, with the GCC accounting for close to 70%, and outstanding sukuk have passed $1 trillion. Oman is positioned in the right region, with the right framework, at the right moment.
What will decide the outcome is delivery at the small business level. If Islamic institutions take their asset based structures and reach the thousands of Omani entrepreneurs currently underserved, this sector will not merely grow. It will become the mechanism through which Oman’s diversification actually happens.