Mourabaha Operations Conducted by Islamic Banks

CENTRAL BANK OF DJIBOUTI
INSTRUCTION 2012-02 ON MOURABAHA OPERATIONS CONDUCTED BY ISLAMIC BANKS

The Governor of the Central Bank of Djibouti,
Having regard to Law No. 116/AN/06/6ème L of January 22, 2011 on the establishment of Islamic banks in Djibouti, Having regard to Law No. 118/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. 2011-1O/PRE of January 24, 2011 appointing the Governor of the Central Bank of Djibouti, Has decided:

For the purposes of this Instruction, the following expressions mean:
Mourabaha: Sale of an asset at cost price, plus an agreed profit margin between the two parties.
Asset: Any movable or immovable property subject to a Mourabaha transaction.

Mourabaha for the order giver: A negotiated sale between two or more parties who commit to executing this negotiation, whereby the order giver requests the order executor to purchase an asset, promising to repurchase it from him while yielding a profit, with the sale to be concluded after the asset's acquisition by the order executor. Hamech Al-jiddiya (Good Faith Deposit): Amount paid by the order giver at the request of the order executor to ensure the seriousness of the given order. If the order giver withdraws from the purchase promise, while it is binding, compensation for actual damages suffered by the order executor is deducted from this amount. If said amount or Hamech Al-jiddiya does not cover the damage suffered by the order executor, the latter may claim compensation from the order giver for the remainder of the loss. Conversely, if the amount exceeds the damage, the order executor must return the remaining balance to the order giver. Provision for depreciation of assets: Amount allocated to cover depreciation of assets subject to Mourabaha operations, with the aim of reconstructing these assets at their cost or market value, retaining the cheaper option. Non-restrictive investment accounts: Accounts whose holders grant the bank the right to invest them based on a Moudharaba contract in whatever manner it deems appropriate, without obligating the bank to invest them itself, or in a specific project, or for a precise purpose, or in a specific manner. The said holders also authorize the bank to integrate these accounts into its own funds, and consequently, the returns from investments in these accounts are distributed among all parties that participated through their cash contribution or efforts. Restrictive investment accounts: Accounts whose holders grant the bank the right to invest them based on a Moudharaba contract or an investment by proxy contract, subject to certain conditions such as investing them in a specific project or for a precise purpose, or not integrating them into its own funds, etc.

Article 2:
This Instruction applies to Mourabaha transactions for the order giver with a binding purchase promise, whether the Islamic bank acquires the asset using its own funds or restrictive or non-restrictive funds at its disposal.

Article 3:
In Mourabaha sales transactions, the Islamic bank must apply the mandatory purchase rule to the client and therefore not conclude a Mourabaha in which the client does not commit to purchasing the asset once it conforms to the required specifications.

The Mourabaha contract must at least expressly and precisely include the following elements:
Article 4:

1. The rights and obligations of the parties in accordance with a Mourabaha transaction.
2. The asset, subject of the contract.
3. The stipulated price and all expenses, fees, and taxes paid by the order executor, as well as those due by the order giver, including agreed profits.
4. All guarantees provided by the order giver.
5. The Hamech Al-jiddiya paid in advance in cash by the order giver, which must not be less than 10% of the total amount to be paid by the order executor.
6. The payment terms for the sale price by the order giver and the penalty for late payments.

Article 5:
The Islamic bank may not hold assets from unexecuted Mourabaha operations for a period exceeding six months from the date of their registration in the Mourabaha accounts. The Central Bank of Djibouti may require the Islamic bank to comply with any measure it deems necessary for the liquidation of the aforementioned 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.

Article 7:
This Decision shall enter into force upon its promulgation.