Law No. 116/AN/11/6th L on the Establishment of Islamic Banks in Djibouti

REPUBLIC OF DJIBOUTI
UNITY-EQUALITY-PEACE
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PRESIDENCY OF THE REPUBLIC
Law No. 116/AN/11/6th L
On the Establishment of Islamic Banks in Djibouti.
THE NATIONAL ASSEMBLY HAS ADOPTED
THE PRESIDENT OF THE REPUBLIC PROMULGATES
THE LAW WHOSE TEXT FOLLOWS
IN VIEW OF the Constitution of September 15, 1992; IN VIEW OF Law No. 91/AN/05/6th L of January 16, 2005 on approval of the statutes of the Central Bank of Djibouti; IN VIEW OF Law No. 196/AN/102/4th L of December 29, 2002 on money laundering, asset forfeiture and international cooperation in criminal proceeds; IN VIEW OF Law No. 119/AN/11th L on the establishment and supervision of credit institutions and financial auxiliaries; IN VIEW OF Decree No. 2008-0083/PRE of March 26, 2008 on the appointment of the Prime Minister; IN VIEW OF Decree No. 2008-0084/PRE of March 27, 2008 on the appointment of members of the Government; The Council of Ministers having been heard in its session of December 14, 2010.

DEFINITION OF ISLAMIC BANKS
Article 1
Islamic banks are considered to be those banks whose statutes include the obligation not to contravene, in their operations, the precepts of Islamic law (Sharia), notably the prohibition on receiving or paying interest. Islamic banks must be approved as credit institutions, within the category of banks in accordance with Article 9 of Law 119/AN/11th L on the establishment and supervision of credit institutions and financial auxiliaries. Unless otherwise provided by this Law, Islamic banks are subject to all applicable legal and regulatory provisions for credit institutions in force in Djibouti. They may, to this end, perform all activities defined in Article 4 of the aforementioned Law No. 119/AN/11th L, depending on the extent of their approval, as well as all operations in accordance with Sharia precepts such as: Murabaha to the order giver, Musharaka, Ijara, Salam and parallel Salam, Istisna'a and parallel Istisna'a, Mudaraba, etc. Islamic banks are authorized to acquire real estate rights exclusively for the purpose of creating investment projects. Acquisition shall be subject to prior authorization from the Central Bank of Djibouti, which must ensure the project's viability. The duration of acquisition of real estate rights may not exceed a renewable period of 20 years.

CONDITIONS FOR EXERCISING ISLAMIC BANKING ACTIVITY APPROVAL CONDITION
Article 2

1. The establishment of an Islamic bank and the setting up of a subsidiary of a foreign Islamic bank in Djibouti are subject to prior approval by the Central Bank of Djibouti, in accordance with Article 17 of the aforementioned Law No. 119/AN/11th L.
2. The Central Bank of Djibouti shall specify by circular all conditions required to obtain approval.

Article 3
Non-Islamic banks operating in Djibouti are authorized to establish or participate in the establishment of Islamic banks, or acquire shares in Islamic banks established in Djibouti, under the conditions provided for in Article 51, paragraph 4 of the aforementioned Law No. 119/AN/11th L. They may also exercise Islamic finance activities in accordance with this Law under the conditions provided for in Article 8, paragraph 2 of the aforementioned Law No. 119/AN/11th L.

CONDITION OF LEGAL FORM
Article 4

1. Islamic banks must be established as joint-stock companies, or as Djiboutian cooperative societies, or any other form deemed acceptable by the Central Bank of Djibouti.
2. The branch or agency of a foreign Islamic bank must have the form of joint-stock company or cooperative society unless it is established under another legal status at the time of approval, provided it complies with the legislation in force of the Republic of Djibouti.

DEPOSIT AND INVESTMENT ACCOUNTS
Article 5
Funds deposits received by Islamic banks are governed by the provisions of Law No. 119/AN/11th L on the establishment and supervision of Credit Institutions and Financial Auxiliaries, and by circulars issued by the Central Bank of Djibouti, subject to an explicit agreement with the customer authorizing the bank to generate returns on its deposits from a portfolio of projects and operations that the bank agrees to finance. The depositor is entitled to a share of profits generated by the bank and bears a share of any losses recorded in the financing undertaken by the bank. The customer's agreement with the bank may take the form of customer participation in the financing of a specific project proposed by the bank. In this case, the customer directly assumes a share of risk in the project of which they have taken note, in exchange for a percentage deducted from the profit rate generated by financing the project in question.

ETHICAL AUDIT OR SHARIA COMMITTEE
Article 6

1. The constituent assembly of any Islamic bank and, subsequently, ordinary general assemblies, upon the proposal of the Board of Directors, for a renewable three-year term, appoint an organ named the Sharia Committee, composed of at least three experts in Islamic law and doctrine, and in the field of banking and financial operations, responsible for verifying the bank's transactions with Sharia precepts. The decisions and recommendations of the Sharia Committee are binding on the Islamic bank and its management.
2. The Sharia Committee is required to submit a report on this matter to the Board of Directors and the General Assembly of shareholders.

• The Sharia Committee may on its own initiative submit to the General Assembly and the Board of Directors any proposal it deems useful for achieving the bank's purpose in accordance with Sharia precepts.
• Members of the Sharia Committee may only be dismissed by decision of the General Assembly of shareholders.
  . The administration of the Islamic Bank is required to inform the Central Bank of Djibouti of the appointment, dismissal and any changes in the composition of the Sharia Committee.

Article 7
The Central Bank of Djibouti may avail itself of the services of an Advisory Committee composed of specialists in Islamic law and doctrine, and in law, responsible for issuing an opinion to the Central Bank of Djibouti on all matters that Islamic banks submit to the Central Bank of Djibouti.

FINANCIAL OPERATIONS CARRIED OUT BY THE CENTRAL BANK OF DJIBOUTI REGARDING ISLAMIC BANKING PRODUCTS
Article 8
The Central Bank of Djibouti is authorized to carry out the following operations:

• Open accounts with Islamic banks in Djiboutian francs or foreign currencies
• Open accounts on its books in the name of Islamic banks in Djiboutian francs or foreign currencies
• Buy and sell all financial instruments and other products in accordance with Sharia precepts
• Issue products in accordance with Sharia precepts.

PARTICULAR MEASURES IN FAVOR OF HOLDERS OF INVESTMENT ACCOUNTS
Article 9
Participatory accounts, allocated or unallocated, subject to Article 5 of this Law, are not subject to the mandatory reserves provided for in Article 33, paragraph 2 of the aforementioned Law No. 119/AN/11th L.
The Central Bank of Djibouti is authorized to issue appropriate prudential measures and rules for this category of participatory deposits.
A periodic and written information obligation rests on the Islamic bank regarding holders of allocated or unallocated participatory deposits subject to Article 5 of this Law. The frequency and scope of such obligation will be subject to appropriate measures taken by the Central Bank of Djibouti.

PRACTICE OF ISLAMIC BANKING PRODUCTS WITHIN THE CONVENTIONAL BANKING SYSTEM
Article 10
A bank wishing to open one or more new counters offering Islamic banking products or wishing to convert counters previously practicing conventional banking activity into counters offering Islamic banking products, so-called "Islamic counters", must observe the regulatory provisions issued for this purpose. In support of its application to the Central Bank of Djibouti for authorization to practice Islamic banking activity, the bank concerned must provide an economic profitability study reflecting a strategic plan for the design of the bank for the Islamic counter, the nature of the products that the counter intends to practice, and the procedure to be followed regarding the rest of the bank's activities. To ensure the conformity of operations carried out by the counter, a Sharia Committee will be appointed in accordance with the provisions of Article 5 of this Law. With the aim of ensuring a functioning that is both transparent and respectful of Sharia precepts, the Central Bank of Djibouti is authorized to issue measures in this regard.

REGISTRATION OF BANKS
Article 11
Companies established on the date of entry into force of this Law that carry out banking operations in accordance with Sharia precepts are registered in the register of Islamic banks within a period of 6 months from the date of entry into force of this Law. They are required to modify their status in accordance with the obligations of this Law within a period not exceeding 2 years from the date of entry into force of this Law. The Central Bank of Djibouti is authorized to extend the period mentioned in the preceding paragraph once and for a duration of one year. In the event of a company's failure to observe the above provisions, the Central Bank of Djibouti may impose one of the sanctions provided for in Article 58 of the aforementioned Law No. 119/AN/11th L.

LIQUIDATION OF ISLAMIC BANKS
Article 12
The liquidation of Islamic banks proceeds in accordance with the laws and regulations in force in Djibouti, taking particular account of legal privileges subject to the specific provisions mentioned in the second paragraph of this Article. The rights of holders of allocated and unallocated participatory accounts subject to Article 5 of this Law regarding liquidation balances take priority over the rights of shareholders of the Islamic bank.

Article 13:
This Law shall enter into force upon its promulgation and will be published in the Official Gazette of the Republic of Djibouti.
Done in Djibouti, on ..??. JAN., 2011
[Signature/Seal]