Regulatory Alerts2013-03-17
On Moudharaba Operations Conducted by Islamic Banks
The Central Bank of Djibouti issued Instruction 2012-03 to regulate Moudharaba operations conducted by Islamic banks, establishing clear definitions for capital holders and managers while mandating that contracts specify capital amount, duration, profit-sharing mechanisms, and risk allocation. The regulation requires capital holders to bear operational losses unless caused by the manager's negligence, mandates dedicated accounts for fund management, and restricts asset holding periods to six months unless renewed by the central bank. Furthermore, it clarifies remuneration structures, ensures Moudharaba capital does not constitute a direct claim against the manager, and aligns Islamic banking practices with general credit institution regulations upon promulgation.
CENTRAL BANK OF DJIBOUTI INSTRUCTION 2012-03 ON MOUDHARABA 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, Has decreed:
Article 1: Definitions For the purposes of applying this Decision, the following expressions mean: Moudharaba: A contract concluded between a fund provider, the Capital Holder, and a capital manager, the Moudharib. The Moudharaba contract provides that the Capital Holder invests funds in the operation and the Moudharib is responsible for managing this capital. Capital: The amount in cash or in kind, subject to the moudharaba operation, provided by the Capital Holder. Moudharib: The agent of the Capital Holder whose mission is to invest the capital in accordance with the clauses of the contract signed with him, as well as the provisions of applicable laws and regulations. An Islamic bank may manage
Article 2: The Moudharaba contract must at least clearly and precisely include the following elements: 1- The amount of Moudharaba Capital, whether in cash or in kind, as well as the costs included in the capital. 2- The duration of the Moudharaba. 3- The rights and obligations of the parties, particularly the right granted to the Capital Holder to monitor and verify the Moudharaba accounts and related documents held by the Moudharib. 4- The guarantees provided by the Moudharib against any negligence or breach on his part of the clauses of the Moudharaba contract. 5- The conditions and rules relating to the extension, liquidation, or distribution of the Moudharaba. 6- The method of distributing the profits of the Moudharaba, which must take the form of an undivided percentage of profits and not a lump sum or a percentage of the Moudharaba Capital. 7- The date and procedures for handing over the Moudharaba Capital to the Moudharib or placing said capital at his disposal. 8- A declaration, where applicable, by which the Capital Holder indicates whether he accepts that the Moudharib borrows against the Moudharaba capital, lends it, or transfers it to a third party in the form of a Moudharaba, specifying the conditions governing these operations.
Article 3: The Capital Holder must, if necessary, open an account in the name of the Moudharib on which withdrawals can be made, and into which the capital and revenues of the Moudharaba may be deposited.
Article 4: The Capital Holder must bear any loss arising from the Moudharaba operation, provided it does not result from the negligence or breach of conditions by the Moudharib.
Article 5: The Moudharaba contract specifies the terms of remuneration for the Moudharib. The Moudharib may be remunerated from the profits generated by the Moudharaba operation or receive a lump sum for capital management. The Capital Holder may not hold, for a period exceeding six months, assets resulting from the liquidation or distribution of Moudharaba operations. The Central Bank of Djibouti may renew this period or impose on the Capital Holder any measure deemed necessary for the liquidation of said assets.
Article 6:
Article 7:
The Moudharaba Capital may not constitute a claim of the Capital Holder against the Moudharib or another party.
Article 8: 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.
Article 9: This Instruction shall enter into force upon its promulgation.