HOW CAN AN ISLAMIC BANK BE ESTABLISHED

Who can establish an Islamic Bank? Any group of Muslim individuals, or corporations among whom there is a close linkage of sincere desire to set up an Islamic Bank they can establish an Islamic Bank which does not deal at usurious interest according to the rules of laws of formation of companies in the country they stay. This idea may spring from an individual and he calls for it and others are convinced of it. And the individuals of this group meet to discuss the idea of establishing the bank and its regulations of work and the fixing of the amount of capital and the value of participation of every one of them in it. And the result of agreement is recorded in a document signed by them which is called a foundation contract and they are considered the founders. The founders lay the rules and regulations which the bank follows and they are called The Statutory Foundation- the constitutional law. Then the founders raise the Foundation contract enclosed with it the Statutory Foundation (constitutional law) to the concerned agencies to obtain the necessary license to set up the bank. And after issuing the license the bank joints the membership of the international association of Islamic Banks. And the international association of Islamic Banks is aware of offering the technical aid in this stage and after it, when it is demanded from it to do that. The role of sponsors for Islamic Banks and the limits? The founders are the sharers whom the idea of establishing the Islamic Bank is implanted in their minds and because they are faithful to its importance they exerted their thinking, property and effort till the bank has been formed and therefore they are more experienced than other as regards its Foundation stages and they are also aware of the safety of its march and development. Their role has begin since it was an idea and their role is determined by which is stated in the Foundation contract and its statutory foundation the constitutional law in the light of rules of law of the country where it was established and what had been given to it of facilities and privileges. And they may from the first board of directors, and they may form a part of the board and it is completed by other members whom they appoint from among the

sharers. And this board continues for a number of years. They may also take the form of the group of sharers (the general assembly) till the first general assemble convenes. And all this is an exception from the rules of the statutory foundation (the constitutional law) during the first term of its foundation. And after the end of the first period which is the most important period in the life history of the bank, they become old sharers. Conditions included in the permission of establishment? The foundation contract should include the following articles: 1. The agreement of the founders who signed the contract to found a joint stock company according to the rules of the statutory foundation (constitutional law) attached to the contract. The name of the company (the bank).

3. Location of the main bank and the possibility of establishing braches or offices or agencies inside and outside. 1. All the dealings of the bank are subject to what is imposed by the legitimate rules of Islamic law and particularly not dealing at usury either in the form of interest or any other form. The object of setting up the company (bank). The amount of capital of the bank, number of the shares which the capital is divided and the value of every share. The number of sharers in which every founder has subscribed and their value and the number of sharer which are floated in public subscription (in case the founders have not subscribed in the sharers of capital in full. The signature of founders.

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Conditions included in the charter of the bank? The organizations of companies may differ from one country to another, but the statutory foundation (constitutional law) of any bank should include the following: Firstly: Foundation location objective period: 1. It is licensed according to the rules of law to establish an Islamic Bank of which its dealings should be run in accordance to the rules of Islamic

law and particularly the prohibition of usury and it is named Bank joint stock company and referred to later on by the name of the bank. 2. 3. 4. Location of the head office of the bank and it may establish branches, agencies inside the county and outside. The objective of establishing the bank (the objectives should be mentioned in detail). The period determined to the bank and its extension is according to the procedures stipulated by the statutory foundation (constitutional law).

Secondly: Capital share deposits donations and contributions. 1. 2. The amount of capital number of shares forming the capital the value of the share. The number of shares subscribed by the founders and their value, the number of shares which will be floated in public subscribe in all the shares of capital). The board of directors decides the date of floating the rest of shares for subscription and the dates of payment. The board of directors decides how to appropriate the shares among the shareholders in case of the increase of subscriptions. The board of directors decides the procedures which are followed in case the sharers do not pay the value of their shares during the appointed times. The possibility of increasing the capital and issuing new shares by a resolution of the general assembly according to a proposal by the board of directors and by mentioning the number of sharers have the priority in subscription in all or some of the new sharers. The possibility of decreasing the capital by a decision from the extraordinary general assembly, according to a proposal from the board of directors, and mentioning the way of reducing. Shares should be nominal and owned by Muslims. The bonds representing the shares are extracted from a book of slips in serial numbers, indicating the statements which these bonds include and that who is entitled to sign these slips.

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Mentioning how transfer the ownership of the shares. Acceptance of saving and investing deposits and others and current accounts. The possibility of stipulating the minimum limit of the investing deposit. And authorizing the board of directors in modifying this limit. The possibility of accepting donations and contributions by the bank either conditional or un-conditional. The bank has the quality of mediation and the entire legal and legitimate trusteeship on behalf of the group of depositors in investing their deposits. The possibility of lending the owners of accounts and deposits good loans according to the conditions set by the board of directors and they have also the priority to benefit from the services rendered by the bank.

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Thirdly: Employment of deposits and using resources. 1. 2. 3. 4. The board of directors has to determine the investing deposit. The bank invests the investing deposits and what it can employ of saving deposits and current accounts deposits. Investing should be through participation or other forms of legal participation. The depositors in the investment account deserve a portion out of the investment profits according to the value of the deposit and its term, besides they bear a portion of loss. What the bank uses from the funds of other deposits are not entitled to a loss. The possibility of giving good loans to individuals in the cases of and in accordance to the restrictions set by the board of directors.

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7. The bank may make direct investments (supervised by it) or indirect investments and it may also establish investing institutions financed by the bank to set and to manage under its supervision investing projects on behalf of the bank and for its account. 8. The bank has to ensure the safety of investing projects and it is entitled to actual control and inspection on the projects financed by the bank.

9. It should be stipulated in all contracts concluded by the bank with another concerning participation or help in investment to follow the rules of the Islamic law and the project which is the subject of contracting or dealing or handling including services or works is not prohibited by the Islamic law. Fourthly: The board of directors. 1. The number of its members and they are elected by the general assembly and the board selects from among its members a chairman and a governor and the governor may be from non members. And ass an exception from that the founders select the first board of directors for the period of. Years. The board meets once every. Months at most by an invitation from the chairman and to mention in this invitation the schedule of work (the table of contents). The meeting is presided over by the chairman of board of directors and in case of his absence. The meetings will no be valid unless the majority of the members at least attend them. The decisions of the board are issued by the majority of the votes of attendants and if they are equal the side including the chairman outweighs. The process verbal of the meetings (Meetings statement) are recorded in a register and signed by the chairman and the secretary of the board. It can be stipulated to secure a certain number of members to approve certain matters like the proposal of the modification of capital and the extension of the period of the bank. The board of directors has all the authorities save that which is reserved to the general assemblies. The chairman represents the bank in front of the judiciary and in its relations with others and he has the right to sign in single on behalf of the bank according to what is determined by the board and the regulations set by it. The board of directors is entitled to appoint managers or delegated agents or legal representatives and authorizes them to sign on behalf of the bank in single or in group according to the regulations of the bank. The board lays regulations and internal rules of the bank. The board of directors sets on every fiscal year (and during..month of its closing) a balance sheet of the bank, a profit and loss account according to

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the rules and accounting principles and regarding the nature of the bank as Islamic Bank. 12. 13. The board of directors prepares a report on the activity of the bank during the last year and on its financial position at the end of the same year. The balance sheet and the final account are published in newspaper, or informing by a copy of them and the report of auditors of accounts and the briefed report of the board of directors to every sharer by registered mail before holding the meeting of the general assembly by at least. Fifthly: The legitimate control body. 1. The legitimate control body is formed members at most, choose from doctors of Islamic law and men who are deeply rooted in comparative law who believe in the idea of Islamic Banks and they are chosen by the general assemble every. Years and as on exception from what is previously mentioned the founders have chosen the members of the first legitimate control body for a period of. Years. The affair of legitimate control body is to offer consultation and to revise all matters concerning the application of the rules of Islamic Law. And in that connection it has the same means and jurisdictions of the auditors of accounts. The board of directors may call whoever represents the legitimate control body to attend any session and he will not have a considered vote. The legitimate control body may ask for holding a private session of the board of directors to explain its point of view relating the legal Islamic affairs, if it is required.

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Sixthly: The General Assembly. 1. 2. The general assembly which is validly formed represents all the sharers. Every sharer has the right to attend the general assembly and he has one vote for each share and he has right to delegate another sharer to represent him in the general assembly. The delegation be written in a Script kept in the secretariat of the general assembly before its convocation by.at least. The ownership of the sharers should not be recorded or transferred in the banks register from the date of publishing the invitation of meeting till the end of meeting of the general assembly.

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The general assembly meets every year duringmonths later till the end of the financial year of the bank at most in the appointed place, date and time in the announcement of invitation. The general assembly is presided over by the chairman of board of directors or the governor in case of his absence. The general assembly meets to hear the report of the board of directors on the activity of the bank and its financial standing and the report of auditors of account and the endorsement of the final accounts and the approval of the distribution of profits and the election of members of board of directors, the legitimate control body and the appointment of auditors of accounts and determining their remunerations. And as an exception to what is mentioned before, the founders determine the remunerations of the first members of the board of directors, the first members of the legitimate control body and the first auditors of accounts.

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The board of directors can invite the general assembly when it sees necessity for that. The general assembly may be invited according to the request of the auditors of accounts or the sharers who possess one tenth of capital at least. The validity of the meeting of the general assembly should be.percent of the capital of the bank represented in it at least. And if this minimum percentage is not provided in the first meeting the assembly meets according to a second invitation during..days following. The next meeting will be valid whatever the number of shares represented in it. The decisions of the general assembly are issued by the majority of voted of the attendants, and in case they are equal the side including the chairman outweighs. 11. Every sharer during the meeting of the general assembly has to discuss the report of the board of directors, the balance sheet and the final accounts, on condition that the question should be presented to the secretariat of the board of directors before the meeting of the general assembly.days at least. 12. The discussions of the general assembly are written down in a register and signed by the chairman, secretary, controllers of voting and the two auditors of accounts.

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13. The general assembly has not to modify the objective of the bank as it is an Islamic Bank or to or increase the obligations of sharers. But the extraordinary general assembly may modify any thing else from the rules of the statutory foundation, provided that the subject of modification should be laid in detail in the announcement of invitation. 14. The attendants in the meetings of the extra ordinary general assembly should represent. Percent of the capital at least and their decisions are issued by the majority of percent from the capital at least. 15. The general assembly has not to deliberate in other affairs save matters in the schedule of works (table of contents)00 indicated in announcement of invitation and regarding the matters which considered a direct result to the discussion of subjects enlisted in schedule of works (Table of contents). the the are the

16. The decisions of the general assembly which are issued according to these rules are obligatory to all sharers even those who are absent or differing in opining. Seventh: The Financial year and the distribution of profits. 1. The financial year of the bank begins from the 1st.and encloses at the end of. of every year. And as regards the first financial year it begins from the date of foundation of the bank and closes at the end of the monthof the next year. The distribution of the net profit is after deducting all expenses and forming reserves as follows:

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Eighthly: The two auditors of accounts: 1. The bank has two auditors of accounts from the physical persons and they are appointed by the general assembly and their remuneration is determined by the general assembly. 2. The two auditors exercise their work from the date of their appointment to the date of the next general assembly. And if the post of any auditors becomes vacant at any time during the year for any reason the board of directors appoints another who replaces him at once. 3. The two auditors have the right at any time to check all the books of the bank, its records and document and ask for indications and explanations they see necessary to obtain for performing their work. The two auditors have to be sure of the assets of the bank and its liabilities;

and the board of directors has to enable them in all what is mentioned before. 4. The two auditors in case they are unable to perform their duty they should write that down in a report submitted to the board of directors and presented to the general assembly in its first meeting if the board of directors does not facilitate their work. 5. The auditors have to attend the general assembly to be sure of the validity of the procedures in the call for meeting. 6. The auditors are asked about the validity of the statements coming in their report in their quality as proxy of the group of sharers. And every sharer during the meeting of the general assembly has the right to discuss with them and asks for explanation relating what comes in the report. Ninthly: Conclusive rules: 1. 2. When the bank is dissolved. Liquidation and its procedures.

Objectives that the bank incorporates in its constitutional laws? The objective of establishing the Islamic Bank is to perform all banking, financial and commercial works, investing operations, establishing projects of industrialization economic development, construction and rehabilitation and participating in them internally and externally and in particular it exercises the following operations: 1. 2. 3. Opening accounts for current cash deposits. Opening credits. Accepting deposits and investing them with the banks funds in all dealings allowed by the Islamic Law. 4. Keeping securities in private coffers. 5. Offering letters of guarantee. 6. Presenting and accepting personal and physical guarantees including mortgages. 7. Performing foreign exchange operations. 8. Issuing Cheque. 9. Accepting bonds like share of companies and commercial papers to be kept in the bank besides collecting their due rights on behalf of their owners and payment of and collecting Cheque, money order and promissory notes unless they include usury interests or other unlawful matters. 10. Performing storage operations for goods presented from the clients as a guarantee to their dealings and all other storage operations.

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Issuing shares on behalf of organizations and companies and helping them in subscription operations in case of their foundation or increasing their capitals. 12. Performing operations of trustees of investment or any other banking operations which do not contradict the sacred rules of the Islamic Law. 13. The bank performs commercial, industrial, agricultural operations and other either directly or through companies of which it founds or participates in. 14. Representing banks and institutions which practice similar objectives. 15. Renting and purchasing lands, founding and purchasing buildings and properties to exercise the aspects of its activity within its objectives. 16. Different investments in all what is allowed by the Islamic Law.