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2013-03-17

On Moucharaka or Participation Operations Conducted by Islamic Banks

Issued by the Governor of the Central Bank of Djibouti, Instruction 2012-04 establishes the regulatory framework for Moucharaka and participation operations conducted by Islamic banks, defining their structures as either constant or decreasing partnerships with limited liability. The regulation mandates that Moucharaka contracts explicitly specify the project objective, contribution volume and form, duration, management responsibilities, profit and loss distribution percentages, agent guarantees, and termination procedures, while prohibiting capital repayment clauses within the primary contract unless documented separately for decreasing Moucharaka. Furthermore, it restricts Islamic banks from holding liquidated partnership assets beyond six months unless the Central Bank grants an extension or orders specific liquidation measures, and confirms that general credit institution regulations apply unless otherwise stipulated.

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INSTRUCTION 2012-04 ON MOUCHARAKA OR PARTICIPATION OPERATIONS CONDUCTED BY ISLAMIC BANKS

The Governor of the Central Bank of Djibouti, Having regard to Law No. 116/AN/6ème L of January 22, 2011, on the establishment of Islamic banks in Djibouti, Having regard to Law No. 18/AN/06/6ème L of January 22, 2011, amending the Statutes of the Central Bank of Djibouti, Having regard to Law No. 119/AN/06/6ème L of January 22, 2011, on the establishment and supervision of credit institutions and financial auxiliaries, Having regard to Decree No. 2011-10/PRE of January 24, 2011, appointing the Governor of the Central Bank of Djibouti, Decrees:

For the purposes of this Decision, the following expressions mean: Moucharaka: Contribution of assets by a bank and one or more agents in equal or different shares, to establish a new project or participate in an existing project, with the objective of sharing profits, so that each party becomes owner of a share of capital proportionate to its contribution.

Moucharaka is either constant or decreasing/degressive, and takes the form of companies or entities in which the Moucharaka or participation of Islamic banks does not entail unlimited liabilities. Constant Moucharaka: Moucharaka in which the partner's (or partners') share in the project capital remains constant throughout the duration of the Moucharaka as fixed in the contract. Decreasing/Depreciating Moucharaka (Mountahia bit tamlik): A Moucharaka in which one partner grants the other the right to progressively purchase its share, so that one partner's share decreases while the other partner's share increases, until the latter becomes the sole owner of all the project capital. Participations: Moucharaka in which an Islamic bank acquires shares, securities, or rights representing a share of the capital of another institution or establishment.

Article 2: The Moucharaka contract must expressly and precisely include the following elements:

  1. The object of the Moucharaka.
  2. The volume, form (in cash or in kind), and share of contribution to the capital.
  3. The duration of the Moucharaka.
  4. The manager of the Moucharaka operations: this task may be assigned to one party, the other, or both jointly.
  5. The rights and obligations of the parties, particularly the right granted to the Islamic bank to control and ensure the monitoring of the Moucharaka operations, in case the agent is exclusively responsible for their management.
  6. The method of profit and loss distribution, which must be in the form of a percentage rather than a fixed sum, so that losses are shared proportionally to each partner's share in the capital, any contrary provision being prohibited.
  7. The guarantees provided by the agent against any breach or negligence on its part in managing the Moucharaka operations, in case it is responsible for them.
  8. The procedures and conditions for the termination of the Moucharaka and the distribution of its assets.

Article 4: The Moucharaka contract may not include any clause that authorizes the contracting parties to repay their share of the capital. However, in decreasing Moucharaka, the conditions for repayment must be established in a separate instrument from the principal Moucharaka contract.

Article 5: The Islamic bank may not hold, for a period exceeding six months from their acquisition date, assets resulting from the liquidation of the Moucharaka or participations. The Central Bank of Djibouti may renew this period or oblige the Islamic bank to take any measures it deems necessary for the liquidation of the assets.

Article 6: In addition to the provisions of this Instruction and unless otherwise stipulated, Islamic banks are governed by all provisions, regulations, and principles relating to credit institutions in general. This Instruction shall enter into force upon its promulgation.

Article 7:

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