Regulatory Alerts2013-03-17
Instruction 2012-06 on Istisna'a Operations
The Central Bank of Djibouti issued Instruction 2012-06 to regulate Istisna'a operations by defining the Order Giver, Manufacturer, and parallel contract structures. The directive mandates that all Istisna'a contracts explicitly detail party rights, product specifications, pricing, payment terms, delivery schedules, and applicable penalties. Furthermore, it permits Islamic banks to hold resulting assets for over six months with central bank approval and clarifies that existing credit institution regulations apply unless otherwise stated.
CENTRAL BANK OF DJIBOUTI INSTRUCTION 2012-06 ON ISTISNA'A OPERATIONS
The Governor of the Central Bank of Djibouti, Having regard to Law No. 116/AN/6th L of January 22, 2011, on the establishment of Islamic banks in Djibouti, Having regard to Law No. 18/AN/06/6th L of January 22, 2011, amending the Statutes of the Central Bank of Djibouti, Having regard to Law No. 119/AN/06/6th L of January 22, 2011, on the establishment and supervision of credit institutions and financial auxiliaries, Having regard to Decree No. 2011-1O/PRE of January 24, 2011, appointing the Governor of the Central Bank of Djibouti, Has decided:
Article 1: Definitions For the purposes of applying the provisions of this Decision, the following expressions mean: Order Giver (Client): The buyer who places the manufacturing order. Istisna'a Contract: A sales contract between the Order Giver and the Manufacturer, pursuant to which the Buyer undertakes, at the request of the Order Giver, to manufacture a specific product or acquire it by the delivery date, in exchange for an agreed price. The product may be specified according to a specification sheet defining the Order Giver's needs in terms of objectives, technical qualities, timeframe, etc. Parallel Istisna'a: An independent Istisna'a contract, parallel to the first, pursuant to which the manufacturer under the initial Istisna'a contract becomes the Order Giver or vice versa.
Article 2: The Istisna'a contract must expressly and precisely include at least the following elements: 1- The rights and obligations of the contracting parties, in a manner proving that the operation is an Istisna'a operation to be executed in accordance with the provisions of this Instruction. 2- A clear description of the product subject to the Istisna'a contract (nature, type, characteristics, quantity, quality, specificity of the asset...). 3- The price of the product and its payment terms, as well as all fees, costs, taxes, and duties to be paid by the Order Giver. 4- The guarantees provided by the Manufacturer. 5- The date and terms of delivery by the Manufacturer of the product subject to the contract, and the penalty in case of non-delivery on the scheduled date. 6- The possibility or not for the Manufacturer to substitute the product subject to the contract with an equivalent payment.
Article 3: At the time of establishing the Istisna'a contract, the debts of the Manufacturer or a third party to the Order Giver cannot be used as a replacement for the product price.
Article 4: Assets acquired by an Islamic bank as a result of Istisna'a operations may be held for a period exceeding six months. The Central Bank of Djibouti may authorize the renewal of this period or impose on the Islamic bank any measure deemed necessary for the liquidation of said assets.
Article 5: In addition to the provisions of this Instruction, and unless otherwise stipulated, Islamic banks are governed by the provisions, regulations, and principles relating to credit institutions in general.
Article 6: This Instruction shall enter into force upon its promulgation.