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Omani manufacturing sector suffers as banks reluctant to fund projects

MUSCAT Banks severely hamper the growth of Omanis manufacturing sector as local financial institutions continue to focus on extending less risky personal loans and ignore project funding.

Funds are hard to come by. Asked any manufacturer in Oman and they will tell you that banks are extremely reluctant to fund expansion projects, a ministry of commerce official said.

The spokesman said: "Our small-to medium sized industries continue to struggle in the face of regional competition. They don't have the financial muscles to improve their products and that's a shame.

"We expect banks to extend more than a third of the total loans to consumers, which is around 1.2 billion rials, while manufacturers are expected to receive only around 300 million rials." He added that commercial banks are expected to extend a total credit of 3.5 billion rials in 2002, five per cent more than the previous year.

The 2002 statistics from the Central Bank of Oman have not yet been published but officials said that local banks are expected to extend most of its funds on consumerism.

A senior banker said that local banks' profitability hinged heavily on personal loans because of the lower risks involved as compared to lending to the private sector's projects.

He said: "Consumers pay us 12 per cent in interest and we have the employers’ guarantee. Local manufacturers demand a quarter of the interest we charged to consumers and they offer unacceptable guarantees. Obviously, we have to consider the risks." Manufacturers hit at local banks saying the local financial institutions were driven by greed. Analysts said that the sultanate needed an industrial bank dedicated to project lending.

An industry analyst said: "An industrial bank perhaps is the answer. The government should take the initiative of inviting international financial institutions specialising in project funding to open branches in the country.

Oman has five industrial areas, which the government is considering to hand over their management to the private sector.

Other experts called for more generous soft loans and subsidies from the government to help manufacturers boost their production. One financial expert added: "Soft loans and subsidies are given sparingly. It is something the government needs to consider. The reason that the products of the UAE manufacturers are more appealing is because they receive generous government finding."