Islamic Banking in Sudan

Introduction

Unlike the experiences of Iran and Pakistan, Islamic banks in Sudan have been operating in a dual system, i.e., alongside conventional banks. Because of their history and circumstances associated with the inception of some of them, Islamic banks in Sudan do not share the same experience. The Faisal Islamic Bank, Sudan (FIBS), for instance, being the forerunner, started operations in 1978 under a special decree that extended some privileges to it. These were represented by tax holidays, exempted from exchange restriction, exceptions from those articles in the Bank of Sudan law pertaining to interest imposition and exemption from some articles of the Labor Act provided that it adopted a generous pay system (Mudawi 1995, 1995, p.246).

Five Islamic banks are found operating in Sudan as per information published by International Association of Islamic Banks. The banks along with their year of establishment are as follows:
1) Sudanese Islamic Bank, 1983
2) Islamic Bank of Western Sudan, 1983
3) Al-Baraka Bank, Khartoum, 1983
4) Islamic Co-operative Development Bank, 1983
5) Al-Tradamun Bank, 1984.

Although the FIBS was allowed special privileges and it was found to be operating without apparent problems, the rest of the Islamic banks were not provided those facilities. Still they got experience from the operation of FIBS. Their operations were largely prompted by the success of FIBS. FIBS provided these banks with trained manpower and training facilities.

The Islamisation of Banking System

Islamisation of banking system in Sudan was initiated by a presidential order from President Numeiry instructing the Governor of the Bank of Sudan to implement the process immediately. This resulted in an immediate instruction from the Governor to the conventional banks to turn themselves Islamic as from July 1, 1984 allowing them two months’ times. This left virtually no time for advance studies or preparations to be taken by the conventional banks to convert themselves into Islamic. As a result, most of the banks could not do much more than to replace the word “interest” with the word “profit”. The basis of all contractual agreement was made Murabaha. No committee conversed in religious guidance was formed and consulted. Lack of carefulness was also noticed by the incident that no supervisory techniques for Islamic banks were designed by the central bank.

Further, it was the requirement that the central bank would change its philosophy and structure and the way it formulates monetary policy and manages monetary affairs within the framework of Islam. The Bank of Sudan was with the trend but lagged behind since it did not seek right advice in right form at the right time. In spite of that the circulars issued by it had been referring frequently to Islamic financial modalities but the name rather the spirit seemed to be the essence.

The Bank of Sudan maintained the conventional instruments for regulating the money supply. It mainly relied on quantitative control by fixing a random credit ceiling and imposing an across-the board cash ratio on all types of deposits. This has not proven to be an effective way of controlling money supply nor conducive to economic development.

Islamic banks in Sudan have been found to be prudent. They diversified their activities by project, client and economic sector in order to minimize their risky operations in an environment of legal and economic constraints. In spite of the Islamisation of the entire banking system of the country, Islamic banks were singled out and subjected to severe attack. The attack came from official as well as from private circles. This antagonistic environment for Islamic banks in Sudan started under the rule of President Numeiry and prolonged until the military government of Al-Mahdi. During the Numeiry rule the attack did not go beyond accusations by the news media that these banks were behind the famine that struck the country at that time and also behind the shortages in foreign exchange and the high prices of foodstuffs. During the transitional military government and Al-Mahdi government intensity of accusations mounted and tribunals were set up to investigate the accusations.

Problems of Islamic Banks in Sudan

The Islamic banks in Sudan operate in isolation. That means these banks are in the grip of a legally supported system based on a monetary authority (the Bank of Sudan) and subject to many other laws that control activities of the banks.

The first problem come across by these banks was the laws and regulations that were not modified to accommodate their operation. They faced the same types of control and supervision as has usually been used for regulating the activities of the conventional banks. Islamic banks had continuously been pursuing the Bank of Sudan to appreciate that they were different and had to be dealt differently—at least that the reporting forms and their terminology should now be in language used for credit restrictions and cash ratios. As a result of that the Bank of Sudan introduced the terms Musharaka and Mudaraba into its credit policy directives.

Another aspect of the isolation of Islamic banks operating in an interest-based financial setting such as Sudan is the absence of any arrangements for receiving financial support from the Bank of Sudan. This, along with quantitative, restrictive credit policy exercised by the Bank of Sudan, caused those banks to end up with excessive opportunities for utilizing their excess liquidity for very short periods of time or overnight (Ibid, p.247).

Another difficult situation which Islamic banks faced was in the area of staff recruitment. All Islamic banks drew on the staff of the conventional banks to varying degrees when they started their operations. The qualities required by Islamic banks are not only proficiency and integrity, but commitment and sense of belonging. This subjected these banks to the demanding task.