2025-06-10
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The Central Bank of Somalia mandates all licensed Islamic commercial banks, including banking windows and subsidiaries, to prepare financial statements aligned with International Financial Reporting Standards while explicitly accounting for Sharīʿah compliance. The guidelines establish minimum disclosure requirements for specific Islamic contracts, Zakat computation, non-compliant income disposal, capital adequacy, and liquidity risk to ensure transparent and comparable financial reporting. Effective for financial years beginning on or after January 1, 2022, these standards require detailed breakdowns of financing, deposits, and interim reports to facilitate regulatory assessment and strengthen prudential oversight.
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DECEMBER,2020
Version 1.0
2020
Guidelines on Financial Reporting for Islamic Commercial Ban 1 ks in Somalia
TABLE OF CONTENT
Part I Introduction
A. introduction 2
B. Authority 2
C. Applicability 2
D. Scope 3
E. Adjectives 3
F. Effective date 3
Part II Regulatory requirements
A. General requirements 4
B. Application of IFRS 4
C. Minimum disclosure requirements 6
Appendix I Illustration of financial reporting
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2 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia A. Introduction
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Guidelines on Financial Reporting for Islamic Commercial Ban 3 ks in Somalia
11. Except for the minimum disclosure for the Sharï’ah Committee Report, this Guidelines does not deal with
other disclosures provided by ICB as part of the Annual Report (e.g., Director's Report, Statement on Corporate Governance).
12. The terms and expressions used in this Guidelines shall have the same meanings assigned to the FIL,
regulations, instructions (as revised from time to time), unless otherwise defined in this Guidelines. A. Objectives
13. This Guidelines aims to:
a. Provide basis for presentation and minimum disclosure of the financial statements on the operations of the ICB in carrying out its Islamic banking business activities. b. Ensure consistency and comparability of the financial statements among the ICBs in complying with the provisions of the CBS' laws and regulations, FRS and Sharï'ah requirements; and
c. Facilitate CBS in its evaluation and assessment of ICBs financial position, performance and Sharï'ah
compliance.
B. Effective Date
14. This Guidelines shall apply to financial statements with the financial year beginning on or after 1 January
2022.
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4 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia
Part Il: Regulatory Requirements
A. General Requirements
15. In accordance with Sections 19(1)(c) of the FIL, an ICB shall ensure that all accounts and financial
records are prepared in accordance with the FRS and with all applicable laws.
16. An ICB should consider both the economic and Sharï'ah effects of Islamic financial transactions which
arise due to the application of specific Sharï'ah contracts to determine the most appropriate accounting treatment. An appropriate accounting policy must be disclosed in the financial statements (see paragraph 29(a)(ii) of these guidelines) in the event an ICB departed from IF-RS requirement due to Sharï'ah prohibition, thus, ensure a fair presentation of financial information.
17. The board of the ICB is responsible for ensuring that the financial statements are drawn up to give a
true and fair view of the situation and of the results of the business of the ICB. The board should satisfy itself that a sound financial reporting structure is in place to ensure the integrity and credibility of the financial statements.
18. An ICB should have documented the policies and procedures for the production of financial reports,
which should inter alia reconciliation process for all data contained in audited financial statements against regulatory returns, where appropriate; and a checklist to ensure that the ICB's capital is calculated in accordance with regulatory requirements. B. Application of FRS
19. Compliance with Sharï'ah requirements is a fundamental requirement to ensure the legitimacy and
permissibility of Islamic financial products and services. In the case of financial reporting, it is important for an ICB to ensure proper due process is undertaken to determine and accord appropriate accounting treatment to a particular Sharï'ah compliant product or transaction to attain faithful representation of financial information.
20. In relation to paragraph 18, an ICB shall establish an internal policies and procedures and well define
processes that is approved by the board to identify and assess the application of relevant accounting standards under the FRS to recognize, classify or measure Islamic financial transactions taking into consideration among others the:
a) substance of the arrangement as well as the underlying contractual form. b) elements of control and nature of returns associated with the contracts. c) risk and rewards of ownership of financial assets l ; and d) components of the cash flow. _________________________________ 1 Financing and investment assets
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Guidelines on Financial Reporting for Islamic Commercial Ban 5 ks in Somalia 2 Solely for payment of principal and profit 2 See Appendix Il on general description of each contract
21. An ICB shall apply the methodologies as outlined in the relevant accounting standards under the FRS
to ascertain the applicable accounting treatment for financial assets, liabilities, income or expenses.
22. In line with paragraph 20, an ICB shall assess the profile and characteristic of a financial asset
structured based on:
a. Sale-based contract, such as the Murabaha would fall within the scope of accounting standard for Financial Instruments by assessing the business model for managing financial assets and performing the SPP11 test on the contractual cash flow to ascertain whether the profit or mark-up represents time value of money or compensation for credit risk. b. Lease-based contract that is the Ijarah, would be subject to accounting standard on Leases by ascertaining whether the arrangement involves a transfer of right to control the use of Ijarah asset from the lessor to the lessee for a period of time in exchange for consideration.
c. Construction-based contract that adopts the Istisna', would be subject to the accounting standard
on Revenue from Contracts with customers given that the underlying asset is yet to be constructed or the standard on Construction Contracts where ICB assumes the construction risk of the asset under development. d. Equity-based contract that adopts the Mudarabah or Mushārakah, would be subject to the accounting standard on Joint Arrangement, Investments in Associates and Joint Ventures, Consolidated Financial Statements, or other standard in the event that the ICB undertake the role of capital provider (Rabbul mal) under the contract. Under such an arrangement, the recognition would depend on the nature of whether the transactions represent an “equity interest" in another entity or an investment with contractual rights to future cash flow. 2
23. Similar assessment should be undertaken to determine the accounting treatment for financial
liabilities that may be structured based on loan contract, sale-based contract, or equity-based contracts, which adopts the Qard, Murabaha or Mudarabah contract respectively.
24. With regards to the disclosure, an ICB should present the carrying amount and income and expenses
related to Sharï'ah compliant deposit and investment account in separate line items in its separate financial statements and consolidated financial statements.
25. The Regulation on Asset Classification and Provisioning 2018 (as revised from time to time) and
relevant instructions are applicable to the treatment of Islamic financial assets.
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6 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia
26. Transactions in foreign currencies are converted into US dollars at rates of exchange ruling at the
date of transaction. Monetary assets and liabilities in foreign currencies at the balance sheet date are translated into US dollars at the rates of exchange ruling at the balance sheet date. All exchange differences are recognized in the income statement.
C. Minimum Disclosure Requirements
27. An ICB shall ensure the disclosure of information comply with the following key principles:
a. information should be timely and up to date to ensure the relevance of the information being disclosed. b. the scope and content of information disclosed, and the level of disaggregation and detail should be sufficient to provide comprehensive, and relevant information to the users; and
c. adequate disclosures should be provided on areas of uncertainty, in particular information on key
estimates and if sensitivity analysis is used, a discussion on the assumptions and the probabilities of the occurrence of various scenarios.
28. The disclosures illustrated in Appendix l, (1) Statement of Financial Position and (2) Statement of
Profit and Loss and other Comprehensive Income set out a minimum requirement and are not meant to be templates that must be adopted by the ICB. Additional information may be required, depending on each ICB's circumstances, to ensure fair presentation. Accounting Policies for Recognition and Measurement
29. An ICB shall disclose the recognition and measurement accounting policies on the following:
a. each main class of Sharï'ah contract e.g. Murabaha, Ijarah, Mudarabah, Istisna':
i. an ICB has to develop the accounting policy for each Sharï'ah contract or group the Shariah
contracts according to the nature of the transactions e.g. Murabaha financing, ijarah financing, Murabaha deposit; and
ii. where an ICB has departed from FRS requirement due to Sharï'ah prohibition and to achieve a
fair presentation, the following shall be disclosed:
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Guidelines on Financial Reporting for Islamic Commercial Ban 7 ks in Somalia 3 Refer to illustration in Appendix l, No (3) (b) b. description of the methodology adopted by an ICB to compute its obligation on zakat as approved by the Shariah Committee e.g., growth method, working capital method; and ICB may disclose its responsibility on Zakat payment under the Director's Report. Meanwhile, an ICB that does not pay zakat must also disclose a statement to that effect in the Director's report. ICBs that pays zakat shall disclose additional information regarding:
i) its responsibility towards zakat payment either on the business, and/or behalf of the shareholders. ii) the beneficiaries of zakat fund e.g., Baitul Mal, the poor, etc.; and
c. for income derived from Sharï'ah non-compliant activities, an ICB may disclose the criteria for the
recognition of such income e.g., upon confirmation by the Sharï'ah committee. Following the recognition of SharT'ah non-compliant, the ICB shall disclose additional information under either the Director's Report or Sharï'ah Committee's Report. the following:
i) nature of Sharï'ah non-compliant activities. ii) amount of Sharï'ah non-compliant income. iii) number of non-Sharï'ah compliant events occurring during the year; and iv) rectification process and control measures to avoid recurrence of such Sharï'ah noncompliant activities. Financial Assets
30. An ICB shall disclose financial assets with a breakdown by:
a. measurement basis (e.g. amortized cost, fair value):
i) for fair value through profit or loss, show separately those designated as fair value upon initial recognition. b. types of financing (e.g. house financing, business, personal, microfinance) and further breakdown by main Sharï'ah contracts in table format:
i) an ICB shall disclose the classification of main Sharï'ah contracts; and significant subclasses of the main contracts.
c. geographical distribution.
d. profit rate sensitivity (e.g. fixed rate, variable rate); e. economic sector; and f. residual contractual maturity (e.g., up to 1 year, 1-5 years, > 5 years)3 . g. Other information the Central Bank of Somalia may require.
31. An ICB shall disclose (a) a movement of non-performing financing for special mention provision and
specific provisions (for substandard, doubtful and loss), which includes opening and closing balances; and (b) non-performing financing by sector. 32.
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8 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia 4 For example, property leasing
33. An ICB shall disclose a movement schedule of the qard (loan) or financing which includes opening
and closing balances, sources, and uses of the fund.
34. An ICB shall disclose for transactions that reflect acquisition or transfer of ownership prior to its
subsequent sale, the carrying amount held for the purpose of Murabaha (cost plus sale) which can be transacted on a spot or deferred basis.
35. An ICB shall disclose for ijarah (leasing that does not lead to transfer of ownership at the end of the
leasing period) 4 , in the following manner:
a. carrying amount of assets held for the purpose of ijarah; and b. extent of the transfer of usufruct (in percentage terms) from the ijarah asset to the lessee over the ijarah period under the terms of the ijarah contract.
35. An investment in equity-based contract held by an ICB requires judgment and consideration of all
facts and circumstance of the contract. This investment may be accounted for either as one of the three categories:
a. a financial instrument under FRS 9 Financial Instruments (at fair value or amortized cost) b. an investment in Associates and Joint Ventures as per IAS 28; or
c. an investment in subsidiary as per FRS 10 Consolidated Financial Statements.
Deposits from Customers and Investment Account of Customers
36. An ICB shall disclose the following information —
a. deposits from customers with a breakdown by:
i. types of Islamic deposits (e.g. savings, current and term deposits) and further
breakdown by Sharï'ah contracts (e.g. Wadï'ah, qard, and tawarruq);
ii. types of customers (e.g. individuals, government, business enterprises); and
iii. maturity structures of term deposits (e.g. < 6 months, 6-12 months, 1-3 years);
b. investment accounts of customers with a breakdown by —
i. types of investment account (e.g. unrestricted or restricted investment
account) and further breakdown by Sharï'ah contracts (e.g. Wakalah and Mudarabah).
ii. types of customers; and
iii. maturity structures of investment account with maturity; and
c. deposits and placements of banks and financial institutions with a breakdown by —
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Guidelines on Financial Reporting for Islamic Commercial Ban 9 ks in Somalia 5 Refer to illustration in Appendix l, No (3) (c) 6 Refer to illustration in Appendix l, No (3) (d) d. types of investment account and further breakdown by Sharï'ah contracts; and e. types of domestic or overseas.5 Income and Expenses
37. An ICB shall disclose income and expenses with a breakdown by types of financing and investment,
and source of funds e.g. deposit, investment account and shareholder's funds.6 Profit income recognized for credit-impaired exposures shall be disclosed separately.
38. An ICB shall disclose non-profit income and other operating expenses with a breakdown of major
items of income or expense e.g. fees or commission.
39. An ICB shall disclose sources of donations/charities funds (e.g. gharamah amount, SharT'ah noncompliance income, shareholder's funds) and uses of such funds (e.g. distribution to the poor, education
fund).
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10 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia Sharï'ah Committee Report
40. In meeting the requirement in Section 7(5) of the Guidelines on Sharï'ah Governance Framework
ICBs 2020 with respect to the state of compliance with Sharï'ah principles, an ICB should disclose the Shariah Committee's Report as part of the Annual Report, signed by not less than two Shariah Committee members. The Sharï'ah Committee's Report shall contain the following information:
a. the purpose of the Shariah Committee's engagement; b. a clear statement of management's responsibility in ensuring compliance with Sharï'ah principles;
c. a statement describing the nature of the work performed;
d. confirmation that the Shariah Committee has performed appropriate tests, procedures and review work as appropriate; e. Shariah Committee's opinion on the Islamic banking institution's compliance with Shariah in respect of contracts and related documentation used; f. appropriateness of Sharï'ah basis for the allocation of profit between shareholders and investment account holders; g. disposal of any earnings from prohibited sources/means to charitable causes; h. zakat computation; and any known non-compliance with Shariah and action taken to remedy such non-compliance. Other disclosures
41. An ICB shall disclose capital with a breakdown by:
a. capital structure; and b. capital adequacy showing separately Common Equity Tier 1 Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio, and express as percentage to three decimal places.
42. An ICB shall disclose reserves with a breakdown by type and purpose of reserves maintained. A
movement schedule shall also be disclosed.
43. An ICB shall disclose liquidity risk information incorporating an analysis of assets and liabilities in the
relevant maturity tenures based on remaining contractual maturities. In addition, an ICB may also provide the analysis of assets and liabilities in the relevant maturity tenures based on their behavioral profile.
44. An ICB shall disclose commitments and contingencies with a breakdown by types and amount
distinguishing between contingent liabilities and commitments.
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Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia 11 Interim Financial Report
45. An ICB is required to prepare a financial report that contains a condensed set of financial statements
on a quarterly basis. Such report should be made available not later than 15 days after the end of the interim period. The Central Bank of Somalia may change the frequency of the reporting when deemed necessary,
46. The explanatory notes to be disclosed in the interim financial report of an ICB shall include the
following information, as applicable:
a. deposits from customers; b. investment account of customers and breakdown of the underlying assets funded through investment account;
c. financing, receivables and other qard loans;
d. a movement schedule of impairment allowances; e. financing, receivables and other qard loans classified as impaired; f. income and profit distributed g. Swift Inward and Outward h. Capital; and
i. Other information the Central Bank of Somalia may require.
47. The breakdown for the above explanatory notes shall be consistent with that specified for annual
financial statements.
48. An ICB shall also disclose items that are material to the understanding of the interim financial report.
Islamic banking window
49. An ICB offering Islamic banking services through Islamic banking window is required to disclose in its
annual financial statement:
a. Whether or not the Islamic banking window commingled funds related to Islamic banking business with funds relating to conventional banking business; b. Sources and application of funds mobilized and invested through the Islamic banking window and the sources of funds used to cover a deficit;
c. Any revenues prohibited by Sharï'ah and the disposition of any such revenues in accordance with the
guidelines endorsed by the SharT'ah Committee; d. Any allocation of reserves from funds that are mobilized according to Sharï'ah, the purpose of such reserves and to whom the reserves shall revert in case the activities in respect of which the reserves were deducted have ceased; and e. Percentage amount of funds relating to Islamic banking business in comparison with the percentage amount of funds relating conventional banking business.
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12 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia
Appendix l: Illustration of Presentation of Financial Statements
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Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia 13
2. Statement of Profit and Loss and Other Comprehensive Income
Note Date
Income
Income from Financing and Investing Assets
Income from Financing Assets
Income from Investment in Securities
Income from Investment in Associates and Joint Venture Income from Investment in Property Fee and Commission income Other Income 3(q) Total Income Staff Expenses General Administrative Expenses Amortization Depreciation Provision for Bad Debts Other expenses 3(s) Total Expenses Net Income before Zakat and Taxation Zakat Taxation Profit for the Year
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14 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia
3. Notes to the Financial Statement
a. Deposits and Placements with Banks and other Financial Institutions Deposits and Placements with Banks and other Financial Institutions Specific Period a. Domestic Banks and other Financial Institutions Interbank Mudarabah Interbank Mushārakah Interbank Wakalah Interbank Wakalah Others (see Note) b. Overseas Banks and other Financial Institutions Interbank Mudarabah Interbank Mushārakah Interbank Wakalah Others Others Total Deposits and Placement with Banks and other Financial Institutions b. Deposits and Placements with banks and Other Financial Institutions Bank Name Country Amount Total
c. Classification of financing assets base on shariah Contract
Shariah contract No. Of Customers Financed Amount (USD) Murabaha Financing Istisna' Financing Ijarah Financing Qardhu Hassan Financing Others (please specify) Total 0 $________
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Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia 15 d. Sectoral Distribution of Financing Assets Economic sectors No. Of Customers Financed Amount (USD) agriculture Auto mobile and vehicles manufacturing Building and construction Mining and Quarrying Energy and water Trade Tourism, Restaurant and hotels Communication Real estate Financial service Education Personal/household Others Total net financing 0 $________________ e. Geographical Distribution of financing assets Geographical Distribution No. Of Customers Financed Amounts (USD) Benaadir Region South West State Puntland State Jubaland State Hirshabelle State Galmudug State Somaliland State Total Net Financing
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16 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia f. Financing Assets Profit Rate yield Financing Assets Duration Profit Rate (%) Financing Assets Amount ($) < 12 Month 0% $ 12 Month 0% $ 18 Month 0% $ 24 Month 0% $ 36 Month 0% $ >36 Month 0% $ g. Classification of Investment in Associates and Joint Ventures Inv. Associates and Joint Ventures Shariah contract type Amount (USD) $ $ $ $ $ Total $ h. Classification of Investment in Property Investment in Property Shariah contract type Amount (USD) $ $ $ $ Total $
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Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia 17
i. Classification of Fixed Assets
Fixed Assets Amount (USD)
$
$
$
$
$
$
$
Total j. Classification of Intangible Assets
Intangible Assets Amount (USD)
$
$
$
$
$
$
$
Total k. Classification of Other Assets
Other Assets Amount (USD)
$
$
$
$
$
$
$
Total
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18 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia
l. Customer Deposit Accounts
A/c type No. of accounts Amount (USD)
SAVING ACCOUNTS 0 $
CUREENT ACCOUNTS 0
CORPORATE A/C 0 $
INDIVIDUAL A/C 0 $
Total 0 $ m. Deposits from Customers and Investment Account of Customers Deposits from Customers (see Note) Amount (USD) Current Qard Others (please specify) Saving Qard Others (please specify) Others (please specify) Total Deposits from Customers Investment Accounts of Customers Amount (USD) Unrestricted Investment Account without maturity Mudarabah Wakalah Others (please specify the type of Sharï’ah contracts) Unrestricted Account with maturity Mudarabah Wakalah Others (please specify the type of Sharï’ah contracts) Restricted Investment Account Mudarabah Wakalah Others (please specify the type of Sharï’ah contracts) Others (please specify) Total Investment Account of Customers
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Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia 19 Deposits from Customers and Investment Accounts of Customers by Residual Contractual Maturity Amount (USD) Less 3 months $ >3 to 6 months >6 to 1 year $ >1 Year $ Total Deposits from Customers and Investment Accounts of Customers by Residual Contractual Maturity n. Deposits from other banks, Mobile Money Services and Other Financial Institutions Banks, mobile money and other financial institutions name Country Amount (USD) $ $ $ $ $ $ Total Deposits from and Placement of Banks and other Financial Institutions $ Deposits from and Placements of Banks and other Financial Institutions Amount (USD) a. Domestic Banks and other Financial Institutions Interbank Mudarabah Interbank Mushārakah Interbank Wakalah Others (see Note) b. Overseas Banks and other Financial Institutions Interbank Mudarabah Interbank Mushārakah Interbank Wakalah Others (see Note)
c. Others
Total Deposits from and Placement of Banks and other Financial Institutions
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20 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia o. Financing liabilities Financing liabilities type Amount (USD) $ $ $ $ $ $ $ $ $ $ $ Total $ p. Other liabilities Other liabilities Amount (USD) $ $ $ $ $ $ $ $ $ $ $ Total $ q. Other income Other Income Description Amount (USD) $ $ $ $ $ $ $ $ $ $ $ Total $
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Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia 21 r. General Administration Expenses General Administration Expenses Description Amount (USD) $ $ $ $ $ $ $ $ $ $ $ Total $ s. Other expenses Other Expenses Description Amount (USD) $ $ $ $ $ $ $ $ $ $ $ Total $
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22 Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia
Appendix Il: Islamic Banking Contracts Definitions
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Guidelines on Financial Reporting for Islamic Commercial Banks in Somalia 23 Construction-based contract
5. Istisna' is a contract in which a buyer purchases an item for deferred delivery. The item must be
described in detail and construction must fit the specifications. For example, the item delivers it on a specific date in return for a specific price to be paid in one lump sum or instalments. Usually, an istisna contract is made for specially made items. For example, one may make a contract to build a house for a client. Equity-based contract
6. Mushārakah (equity financing) contract is an agreement whereby the 1B and a customer contribute
capital to an enterprise, whether existing or new, or to the ownership of real estate or a moveable asset, either on a permanent basis or on a diminishing basis where the customer progressively buys out the share of the 1B ("diminishing Mushārakah"). Profits generated by the enterprise, or the asset/real estate are shared in accordance with the terms of the Mushārakah agreement, while losses are shared in proportion to the respective contribution to capital.
7. A Mudarabah (participation or trust financing) is a contract that refers to an agreement whereby the
bank contributes capital to an enterprise or activity which is to be managed by the customer. Profits generated by that activity are shared in accordance with the terms of the Mudarabah agreement, while losses are to be borne solely by the bank unless they are due to the customer’s misconduct, negligence, or breach of the contract terms. Mudarabah could be restricted to a specific transaction, or unrestricted.
8. Profit Sharing Investment Account (PSIA) is a contract by which an investor/depositor opens an
investment fund with an Islamic bank on the basis of Mudarabah. The bank could have restricted (restricted investment account), or full discretionary power in making investment decisions (unrestricted investment account). Both parties agree on a ratio of profit sharing, which must be disclosed and agreed upon at the time of opening the account. Profits generated by the 1B are shared with the PSIA holder in accordance with the terms of the Mudarabah agreement while losses are borne solely by the PSIA holder, unless they are due to 1B's misconduct, negligence, or breach of the contract terms.
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Source: Central Bank of Somalia — original document · Summary generated with machine assistance and reviewed before publication; the authoritative text is the regulator's original document. How RegAlert works
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