ABDOLRAHIM HAMID TAJALLI 1
Maritime Law Consultant at Al Alawi & Co Law Firm, Sultanate of Oman
Analyzing the Central Bank of Oman’s BNPL Framework: Opportunities for Improvement
The Central Bank of Oman (CBO) recently introduced a comprehensive regulatory framework for Buy Now Pay Later (BNPL) 2 services, reflecting the global surge in the adoption of this innovative financial product. While the framework is designed to ensure consumer protection and market stability, certain aspects may inadvertently hinder the growth and full potential of BNPL services in Oman. This article explores some of the framework’s weak points and discusses why the current credit cap may be inadequate for the Omani market.
The Credit Cap: Is OMR 1500 Enough?
One of the most significant concerns with the new BNPL framework is the cap of OMR 1500 per customer across all BNPL providers. While this limit is presumably set to mitigate the risk of over-indebtedness, it may not align with the purchasing behaviors and financial needs of many consumers in Oman.
In a market where high-value goods such as electronics, home appliances, and travel services are commonly purchased, a credit limit of OMR 1500 can be restrictive.
Consumers seeking to finance larger purchases may find this cap insufficient, leading them to seek alternative financing options, which could reduce the appeal of BNPL services. For BNPL providers, this limitation may constrain market growth and limit the adoption of their services, particularly among affluent consumers who are more likely to make higher-value purchases.
To better serve the Omani market, it may be worth considering an increase in this credit cap. A higher limit would enable consumers to use BNPL services for a broader range of purchases, potentially driving greater adoption and contributing to the overall growth of the BNPL market in Oman.
Prohibition on Cash Disbursements
Another restriction in the framework is the prohibition on cash disbursements by BNPL providers. This rule limits consumer flexibility, as there are scenarios where access to cash could be highly beneficial. For instance, consumers may need cash for emergency expenses or to make payments to vendors who do not accept BNPL. By not allowing cash disbursements, the framework restricts the potential utility of BNPL services, which could otherwise serve as a more versatile financial tool for consumers.
Restrictions on Certain Products and Services
The framework also prohibits BNPL providers from extending credit for investment products, virtual assets, and other items deemed high-risk. While this is a prudent measure to prevent speculative investments and financial instability, it also limits the scope for innovation within the BNPL sector. In a rapidly evolving digital economy, these restrictions may prevent BNPL providers from exploring new markets and product offerings that could cater to tech-savvy consumers interested in a broader range of financial products.
Regulatory and Compliance Burdens
The BNPL framework imposes significant regulatory and compliance requirements on providers. These include stringent credit policies, risk assessments, IT infrastructure standards, and extensive reporting obligations. While these measures are essential for consumer protection and market stability, they also impose high operational costs and complexity. This heavy regulatory burden may discourage new entrants, particularly smaller fintech startups, from entering the market, which could stifle innovation and reduce competition.
Mandatory Physical Presence
The requirement for BNPL providers to establish a physical presence in Oman as their principal place of business presents another barrier. This stipulation could deter international BNPL firms from entering the market, limiting the competitive landscape. For consumers, this means fewer choices and potentially less favorable terms, as the absence of global players could reduce market pressure on local providers to offer competitive rates and services.
Debt Burden Ratio (DBR) Requirements
The framework’s stipulation that BNPL providers must maintain a Debt Burden Ratio (DBR) of 60% for credit limits above OMR 200 adds complexity to the approval process. This requirement necessitates a comprehensive assessment of a customer’s total debt burden, which could delay credit approvals and exclude consumers who may have existing debts but are still financially capable of managing additional credit responsibly. For BNPL providers, this could result in a more cumbersome and less customer-friendly service.
Short Maximum Repayment Period
The maximum repayment period for BNPL services is capped at 12 months. While this ensures that BNPL remains a short-term financing option, it may not provide enough flexibility for consumers, particularly those financing larger purchases. Longer repayment terms could help consumers manage their finances more effectively, making BNPL a more attractive option for high-value transactions.
Sharia Compliance Challenges
BNPL provider’s offering Sharia-compliant products face additional governance and disclosure requirements, including the need to appoint a Sharia advisor. These requirements increase operational complexity and costs, potentially limiting the number of providers willing to offer Islamic finance options. This could reduce the availability of Sharia-compliant BNPL products, which are important in a market like Oman, where there is significant demand for Islamic financial services.
High Minimum Capital and Performance Guarantee Requirements
The framework also sets high financial thresholds for BNPL providers, including a minimum capital requirement of OMR 250,000 and a performance guarantee of OMR 10,000 or 2% of paid-up capital, whichever is higher. These requirements may pose significant barriers to entry for smaller fintech startups, limiting innovation and competition in the BNPL market. In a sector that thrives on new ideas and technological advancements, such financial barriers could prevent promising new entrants from participating.
A Framework in Need of Refinement
While the Central Bank of Oman’s BNPL framework is a necessary step towards regulating this rapidly growing sector, certain aspects may need refinement to better serve the Omani market. Increasing the credit cap, relaxing some of the more restrictive regulations, and reducing the operational burdens on BNPL providers could help foster a more competitive and innovative market. By addressing these weak points, the framework could encourage the growth and diversification of BNPL services in Oman, ultimately benefiting both consumers and providers alike
