Oman-based Islamic banks are developing a counterparty network for wakala, an agency agreement that is sharia compliant. This will be utilized as a key tool to back their interbank financing needs.

Reuters reported that a feasible wakala market could aid the profitability of Omani banks. Additionally, if the wakala is patterned somewhere else in the Gulf, it could contest the supremacy of murabaha, a cost-plus-profit agreement accepted in other countries.

Just last week, the first full-fledged Islamic bank in Oman, Bank Nizwa, signed a bilateral wakala agreement with Bank Sohar's Islamic unit. This allows the lender to put in extra funds with each other. Jamil Al Jaroudi, Bank Nizwa's chief executive, said that the bank is in the course of signing similar contracts with other lenders in Oman. This would help out in creating a formal network that enables Islamic money markets to operate.

"If and when this happens, the volume of transactions would be representative of the size of the Islamic money market in Oman," Jaroudi said.

"Using the concept of wakala as an interbank instrument is new to Oman and perhaps quite new in some other markets too, especially those which have traditionally relied upon commodity murabaha," Jaroudi added.