Conditions for the Establishment of Islamic Banks in Lebanon

Text / Section 1 / No. 95 Date: 2004-12-31

General Decision for Banks No. 95

We enclose herewith a copy of the Basic Decision No. 8829 dated 26/8/2004 regarding the conditions for establishing Islamic Banks in Lebanon.

Beirut, on August 26, 2004
Governor of Banque du Liban
Riad T. Salamé

Basic Decision No. 8829
Conditions for Establishing Islamic Banks in Lebanon

The Governor of Banque du Liban, pursuant to the Monetary and Credit Law, and pursuant to Law No. 575 dated February 11, 2004, concerning the establishment of Islamic Banks in Lebanon, particularly Article 2 thereof, and pursuant to a decision by the Central Council of Banque du Liban taken in its meeting held on August 25, 2004, hereby decrees as follows:

Article 1: The practice of Islamic banking activities in Lebanon is prohibited except by:

• 1. Islamic banks established in Lebanon.
• 2. Branches of foreign Islamic banks.

Article 2 - A: It is required that among the founders of any Islamic bank in Lebanon be banks operating in Lebanon or foreign banks, either Islamic or possessing a distinguished expertise in Islamic banking operations.
B - It is further required that at all times, no less than one-third of the total shares of a Lebanese Islamic bank belong to banks from the categories specified in paragraph (A) of this Article.

Article 3: The minimum capital for Islamic banks in Lebanon and the minimum capital to be allocated to branches of foreign Islamic banks authorized to operate in Lebanon is set at 150,000,000,000 L.L. (one hundred and fifty billion Lebanese pounds), paid in full cash, deposited at Banque du Liban before commencing operations, and determined by the Central Council as a guarantee account for the concerned bank with the Lebanese Treasury, to be returned without interest upon liquidation of its operations.
In justified exceptional cases, particularly if the applying banks possess high professional qualifications, the Central Council may, according to conditions it determines, decide:

• 1. To grant a specific period for the Lebanese Islamic bank or the branch of a foreign Islamic bank to increase its capital to the aforementioned minimum.
• 2. To approve a lower capital not less than thirty billion Lebanese pounds, provided the following two conditions are met concurrently:
     – A. That private funds do not fall below 150 billion Lebanese pounds at any time:
  • For banks participating in the capital of a Lebanese Islamic bank as referred to in paragraph (A) of Article 2 of this Decision.
  • Or for a foreign Islamic bank authorized to open a branch in Lebanon.
    B. That the banks referred to in paragraph (A) of Article 2 of this Decision, or the foreign Islamic bank authorized to open a branch in Lebanon, each as applicable, explicitly and jointly and severally without division, in accordance with the provisions of Article 134 of the Monetary and Credit Law, undertake to reconstruct the capital of a Lebanese Islamic bank or the capital allocated to a foreign branch in Lebanon in case the aforementioned capital suffers any losses.

Article 4: The application for a license to establish a Lebanese Islamic bank is submitted to Banque du Liban, signed by the founders and accompanied by an original copy and three copies of each document specified in Article 2 of Basic Decision No. 7739 dated December 21, 2000, regarding the conditions for establishing banks in Lebanon.
The Articles of Association of Lebanese Islamic banks must include a special section on the Sharia Advisory Board, detailing the rules governing the appointment of its members, their affiliation with the bank, and its powers, including those related to internal Sharia supervision. These rules must demonstrate the bank's commitment in all its transactions and operations to the rulings and principles of Islamic Sharia compatible with prevailing laws that do not conflict with Law No. 575 dated February 11, 2004, concerning the establishment of Islamic banks, and with regulations issued by Banque du Liban implementing the provisions of said law.

Article 5: The application for a license to establish a branch of a foreign Islamic bank is submitted to Banque du Liban, signed by the management of the concerned foreign Islamic bank and accompanied by an original copy and three copies of each document specified in Article 3 of Basic Decision No. 7739 dated December 21, 2000, mentioned above, along with a commitment issued by the board of directors or management of the foreign Islamic bank in Lebanon confirming that the branch of the foreign Islamic bank will apply the content of paragraph 2 of Article 4 of this Decision.

Article 6: The Central Council of Banque du Liban grants the license to establish a bank insofar as it deems it serves the public interest and after verifying the availability of all legal and regulatory conditions noted in Article 4 of Basic Decision No. 7739 mentioned above.

Article 7: The Lebanese Islamic bank or the branch of a foreign Islamic bank licensed for establishment by the Central Council of Banque du Liban must complete its establishment procedures within a maximum period of six months from the date it receives the licensing decision, under penalty of cancellation of this license.

Article 8: In addition to the provisions set forth in this Decision, all provisions and regulations concerning non-Islamic banks apply to Islamic banks, insofar as no contrary provision exists.

Article 9: This Decision is published in the Official Gazette and takes effect upon its issuance.

Beirut, on August 26, 2004
Governor of Banque du Liban
Riad T. Salamé