Fitting the Islamic Bank in the Arab Emirates

Fitting the Islamic Bank in

The Arab Emirates

By Abdel Azish Dimapunung

(Author's name is also spelled as Abdel Aziz Dimapunong in the web)

Chairman and founder, Amanah Islamic Bank

Chancellor, Islamic Banking Institute

Al hamdulillah. I am so glad that I had a hit of 190 page viewers for one day yesterday. This of course is a very small number. The “Founders of Islamic banking” has been viewed 670 times. “Senator Tamano and Islamic banking” has been viewed 405 times. I am so happy about this and I feel I have to continue writing about “The world of Islamic bankers”.

My previous two blogs were all about banking in Dubai. This is my third time to write about this city in the United Arab Emirates. This time the Islamic Banking Research Institute has chosen to peruse the Central Bank of the United Arab Emirates which was proclaimed under the Union Law No. (10) Of 1980, concerning the Central Bank, the Monetary System and Organization of Banking. Our objective is to see where the Amanah Islamic Bank fits in the banking system of the United Arab Emirates. We made no comments as it is purely internal for us to peruse the rules of banking in the Arab Emirates. However, for the benefit of our stockholders elsewhere, our representatives abroad, and would-be investors, I have posted here a copy of Union Law No. (10) Concerning the Central Bank (Part One) as Annex A.

To the Amanah Islamic Bank, all roads lead to Dubai. This is because the Islamic Bank finds a business ally in Kampac Oil Middle East that is based in Dubai. The two entities had recently inked a MOA whereby Kampac Oil M.E. would bring the Islamic Bank to the cities of the Emirates.

Charles Ampofo

Chairman, Kampac Oil Middle East

The city of Dubai is in the United Arab Emirates (UAE). The UAE is a part of the larger Gulf Cooperating Council known as the GCC. This, may I say, is the Gulf of flowing funds. Local banks finance most investment in the UAE. Funds overflow in the sense that banks lack sufficient lending opportunities for their funds, and consequently invest much of their excess funds abroad. How much excess fund? Barney Gimbel, Fortune writer, in his “The richest city in the world” has this to say: “Welcome to Abu Dhabi, the capital of the United Arab Emirates and the richest city in the world. The emirate's 420,000 citizens, who sit on one-tenth of the planet's oil and have almost $1 trillion invested abroad…” Abu Dhabi is ninety miles from Dubai.

Local banks go as far as investing in foreign stock markets to absorb excess liquidity. And the Islamic Bank is from the Philippines where the Philippine Stock Exchange (PSE) has been well established. The PSE is the result of the unification of two bourses in the country, namely: the Manila Stock Exchange and the Makati Stock Exchange. Just a bit of side trip down memory lane, I started my experience on investment banking as an investment analyst at the Manotoc, Rosenberg, Bonoan Securities, then a member of the Makati Stock Exchange. This securities firm was later owned by the Trans-Insular Management Inc. where I served as one of its vice presidents.

Back to the United Arab Emirates, the current domestic financial market has been described as over-banked. It consists of fifty local and foreign commercial banks, (includes two specialized banks) and thirteen foreign bank representative offices. These bankers serve the member cities of the UAE, namely: Dubai, Abu Dhabi, Sharjah, Ajman, Aumm Al Quwain, Ras Al Khaimah , Fujairah, and Al Ain.

It is said that the United Arab Emirates has been the cradle of full-pledge Islamic banking. The City of Dubai particularly is the birthplace of the renowned Dubai Islamic Bank, the worlds pioneering Islamic bank. Since its establishment in 1975, the DIB has been consistently leading in the world of Islamic banking. Up until today, the DIB has been gathering awards and accolades as a truly Islamic Bank.

Just recently this year, Dubai Islamic Bank (DIB) has won for the third time the best Islamic Bank Award at the Banker Middle East Awards 2007. DIB was chosen from a list of global financial institutions at a ceremony that was organized by the Banker Middle East Magazine. The ceremony was held recently in Doha, Qatar. Abdullah Al Hamli, Senior Vice President of DIB accepted the award on behalf of Saad Abdul Razak, CEO of DIB. According to Mr. Hamli, “DIB has been continuously awarded the highest international accolades, including Best Islamic Bank in the Middle East by Euromoney Magazine.

His Highness Dr. Sheikh Sultan bin Mohammed Al Qassimi,

Ruler of Sharjah and Member of the UAE Supreme Council,

Presents the "Best Emiratisation CEO Award"

To Saad Abdul Razak, CEO of Dubai Islamic Bank Group

There is also the Dubai Financial Market (DFM). The government of Dubai was the first to have officially launched in 2003 a US $408 million bond issue that was listed on the DFM. The bond had the purpose of financing a variety of projects in the phenomenal growth of Dubai. The bond issue was arranged and underwritten by a pool of local and international banks.

Islamic banking in the Emirates continues to grow rapidly because it draws funding from both Muslims and non-Muslim investors alike. Notable in this growth are the aggressive Abu Dhabi- and Dubai-based Islamic banks. In addition to the traditional services and project financing, they are involved in real estate development, home and car financing, and service leasing finance.

Banking has been a flourishing business in the Gulf of flowing funds. In the United Arab Emirates, multinational corporations have come because they are attracted to the hands-off government policy that allows for full international ownership and repatriation of profits. There are no corporate taxes for 15 years. There are no currency restrictions. There is no income tax.

The success of the banking industry in the UAE has largely been attributed to its sound monetary, credit and banking policy. This is the function of the Central Bank of the United Arab Emirates as embodied in the Union Law No. (10) Of 1980, concerning the Central Bank, the Monetary System and Organization of Banking (Annex A). Under this law, the Central Bank of UAE directs the monetary, credit and banking policy. The Central Bank also supervises over the implementation of the policy in accordance with the State’s general policy and in such ways as to help support the national economy and stability of the currency.

For the attainment of its avowed goals, the Union Law No (10) of 1980 enumerates a number of directives which the Central Bank of UAE shall perform such as the privilege of currency issue, and the maintenance of its stability and its free convertibility into foreign currencies. The Central Bank is also empowered to direct credit policy in such ways as to help achieve a steady growth of the national economy. It is mandated to organize and promote banking and supervise over the effectiveness of the banking system. As a government bank, it is mandated to undertake the functions of the bank of the Government and therefore, it advises the Government on financial and monetary issues; Above all, it shall maintain the Government’s reserve of gold and foreign exchange; The Central Bank is the bank for banks operating in the UAE. It is also the State’s financial agent at the International Monetary Fund, the International Bank for Reconstruction and Development, and other international and Arab Funds and Institutions.

My posting of this piece of legislation in the UAE is principally intended to assist the directors, Sharia counsel members, officers, foreign representatives, stockholders and investors of the Amanah Islamic Bank to whom I have recommended the establishment of this bank in the UAE to the extent as the laws of the Union may allow.

Last June 3, 2007, the Amanah Islamic Bank concluded its 16^th General Stockholders Meeting where the stockholders ratified the MOA that the bank entered into with the Dubai based Kampac Oil Middle East. The Kampac Oil-Islamic Bank agreement calls for a majority ownership of the bank by Kampac Oil M.E.

The Amanah Islamic Bank is a chartered bank in the Philippines. (For comprehensive information about the Amanah Islamic Bank, download a copy of the Charter of the Amanah Islamic Bank, Annotated by Abdel Aziz Dimapunong. Please click on this link. http://www.maranao.com/download/Islamic_Bank_Charter.pdf)

The Islamic Bank was created by the Congress of the Philippines. http://freewebs.com/islamicbank/

The Islamic Bank was organized into existence by yours truly on April 28, 1992. Over the years it has grown into a billion US dollar bank. The bank is a proponent of renewable energy, principally bio-ethanol and biodiesel.

The Islamic Bank is a pro bioethanol. http://dimapunong.sulekha.com/blog/post/2007/02/amanah-islamic-bank-pushes-for-renewable-energy.htm

On the other hand, Kampac Oil M.E. http://www.kampacgroup.com is an oil company based in the city of Dubai in the United Arab Emirates. The Kampac Group was established in 1988 by its founder, Mr. Charles Ampofo, now the chairman of the Kampac Group. Kampac group has seen a steady growth over the last decade. It has now 15 offices in 13 countries around the globe.

Kampac is now an office in the Philippines. And Charles was here in the middle of May to see Her Excellency President Gloria Macapagal Arroyo. When I heard that he was coming, I volunteered to arrange for his audience with President Gloria Macapagal Arroyo because I know he could help the Philippines build the much needed oil refinery and stockpile for oil. However, I soon found out that Charles has a very strong connection with the Arroyo administration. Charles is particularly proud of having a strong government and business relationships worldwide. “It is our strength”, he said. “Strong government relationships gives us the edge over our peers in the industry”, he added.

The Philippines is already among the regular destinations of Charles in his regular tour of duty as chairman of the Kampac Group. When he comes soon, he would probably be in the company of notable investors from the United Arab Emirates. They would be coming not merely as tourists but as investors. That would be another boost to our currently booming stock market and the flourishing economy of the Philippines under the able leadership of President Gloria Macapagal Arroyo.

The international presence of the Kampac group is shown by the fact that it holds offices in more than a dozen countries.

There are many developments in the Kampac Group in the United Arab Emirates and elsewhere. These include the following:

Oil Blocks in Mauritania. Kampac Oil M. E. FZCO has also signed a memorandum of understanding on September 28th, 2006 with the Government of Mauritania to acquire three oil blocks – Block 26 offshore and Blocks Ta 45 and Ta 25 onshore. The onshore blocks 25 and 45 are neighboring Total France and Repsol oil fields in the Taoudenni basin, and the offshore block 26 is neighboring Woodsides and Danas oil field.

Kampac is Developer of Club Canyon Village Kampac Oil M. E. FZCO was selected by Escan Real Estate as the Developer for The Club Canyon Village in the Al Weriahia Valley, Fujairah Emirate. This flagship Burt Hill-designed project will feature 1181 spacious villas with breathtaking views, a 470 room “Five Star” resort hotel, and a 65,800 square foot luxury spa.

In addition, The Club Canyon Village will include two signature 18-hole golf courses. Pre-construction work begins in the next six months, with completion expected in 2011. "Kampac Properties Ltd. is delighted to have been chosen as the Developer for The Club Canyon Village project,” states Charles Ampofo, Chairman of the Board at Kampac Group. “With the change in U.A.E. property laws in 2006, which enables foreigners to own property on a freehold and leasehold basis and provides for property owners to obtain residence visas, we expect a dramatic increase in demand for recreational and residential property like The Club Canyon Village.” This project is a key part of the U.A.E. government’s strategy to accelerate development of recreational properties in Fujairah, to parallel that of Dubai.

Escan Real Estate, a Dh2.5 billion real estate developer in Abu Dhabi, is leading the infrastructure development for the Al Weriahia Valley. The company is already involved in projects in Abu Dhabi, Dubai and Fujairah. Escan is a private shareholding company with 51 per cent of the equity held by UAE investors and the remaining shares held by GCC and foreign investors.

Abu Dhabi Skyline

The project will be designed and built to the highest standards of environmental responsibility, quality and longevity. The approach from start to finish will be to end up with a spectacular project that the developer, and most importantly, the purchasers, are proud of and point to as a great success. The Club Canyon Village’s location in the Hajar mountain range features breathtaking views of dramatic peaks and precipices that make it a one of a kind opportunity for everyone involved.

Located in the Arabian Peninsula, The Club Canyon Village is close to Dubai, the Emirates commercial center, and Fujairah, the Emirates oil industry and industrial center. The United Arab Emirates are situated within a four-hour flight radius of approximately 1.3 billion people. The Emirates have been very successful in attracting offshore home buyers, whether it is for holiday or retirement purposes, improved standards of living, a more relaxed social environment, political and economic stability, greater safety, or the provision of resident status by the UAE government upon purchasing a home.

Kampac has been awarded a 21000 sq Kampac has been awarded a 21000 sq km (5million acres) onshore block in Senegal under a production-sharing contract (Louga). Kampac has also been awarded a second block comprising 10000 sq km (2.5 million acres) of promising acreage in offshore and in 1500 meters water depth (St.Louis). From available data on both blocks in form of 2D seismic, well information and geologic reports, there are technically attractive plays ranging from Paleozoic onshore to tertiary ones offshore. Promising plays in the offshore block are mainly in tertiary age sediments. Some of the indicated structures display direct hydrocarbon indicators and possible stacked multiple pays in extensive closures. Substantial hydrocarbon columns would be expected in significant closures in the 3 - 3,500 meter depth range. Expected hydrocarbon yield could be in the range of 400 million bbl light oil for onshore Louga and 3-6 TCF gas for offshore St. Louis.

The Kampac group keeps on moving. Diversifying. Integrating. Moving forward. As for the Amanah Islamic Bank, moving to Dubai and the United Arab Emirates would be a great pleasure. That is the call of Kampac Oil Middle East, the banking community and the government of the United Arab Emirates.

ANNEX "A", Part One

Union Law No. (10) Of 1980
Concerning the Central Bank, The Monetary System
And Organization of Banking

“In The Name of God, Most Gracious, Most Merciful”

We, ZAYID BIN SULTAN AL-NAHAYAN, President of the United Arab Emirates, having perused the Interim Constitution; And Union Law No. (1) of 1972 concerning jurisdictions of the Ministries and powers of the Ministers and the amending laws thereof;

And Union Law No. (2) of 1973 establishing the United Arab Emirates Currency Board;

And Union Law No. (7) of 1976 establishing the State Audit Institution;

And in accordance with the proposal of the Prime Minister , approved by the Council of Ministers and ratified by the Supreme Council of the Union;

Promulgated the following Law:

DEFINITION Article (1)

In application of the provisions of this Law, and unless the context otherwise requires. The following words and expressions shall have the meanings cited against them below:

“The Government”	Is the Federal Government
“The Public Sector”	is the Federal Government, Govern­
	ments of the Union’s member Emirates,
	public institutions and organizations,

Municipalities and companies fuly
owned by the Federal Government or by
Governments of the Union’s member
Emirates
“The Minister”	: is the Minister of , Finance and
	Industry.
“The Bank”	: is the Central Bank of the
	United Arab Emirates.
“The Board of	: is the Board of Directors of the Central
Directors”	Bank of the United Arab Emirates.
“Chairman of the	: is the Chairman of the Board of Direc-
Board of Directors”	tors of the Central Bank of the U. A. E.
“Member of the	: is the Member of the Board of Directors
Board “	of Directors” of the Central Bank of the
	U. A. E
“The Governor”	: is the Governor of the Central Bank of
	the U. A. E.
“Currency”	: includes both notes and coins
“Currency notes”	: Currency notes and coins issued by the
and “coins”	Bank under provisions of this Law or
	previously issued under Union Law No.
	(2) of 1973 establishing the United Arab
	Emirates Currency Board.
“Previously Existing	: Currency notes and coins issued by the
Currency”	Currency Board of Bahrain and. the
	Currency Authorities of Qatar and Dubai.
“Convertible	: Any currency - other than the Dirham-
Foreign Currency”	the Bank deems convertible for the pur­
	Pose of this Law.
“Special Drawing	: Any Special Drawing Rights issued by
Rights”	the International Monetary Fund.
“Year”	Is the Gregorian calendar year.

Part One

Central Bank of the United Arab Emirates

Chapter One
Establishment of the Central Bank

Article (2)

There shall be established in the State of the United Arab Emirates a Central Bank to be known as the Central Bank of the United Arab Emirates. The Bank shall be considered as a public institution having its body corporate and enjoying the required juridical capacity to conduct all operations and dealings, which ensure the attainment of the objectives for which it has been established.

Article (3)

1) The operations of the Bank and the organization of its balance sheet and accounts shall be carried out in accordance with the commercial principles of banking The Bank’s dealings with other parties shall be considered as commercial.

2) None of the provisions of the Laws governing the public ten­ders and auctions, public accounts and civil service, other than the Bank’s own regulations, shall apply to the Bank.

3) The preaudit provided for in Law No. (7) of 1976 establishing the State Audit Institution shall not apply to the Bank’s operations. The Audit Institution shall limit itself to post-auditing of the Bank’s operations and shall have no right to interfere in conducting the Bank’s operations or policies.

Article (4)

The Bank shall have its main office in the Capital of the State. The, Board of Directors may approve to open branches, offices, and agencies of the Bank in the member Emirates of the Union and appoint agents and correspondents in the United Arab Emirates and abroad.

Chapter Two
Objects of the Bank

Article (5)

The Bank shall direct the monetary, credit and banking policy and supervise over its implementation in accordance with the State’s general policy and in such ways as to help support the national economy and stability of the currency.

For the attainment of its objectives, the Bank shall:

1) Exercise the privilege of currency issue in accordance with the provisions of this Law;

2) Endeavor to support the currency, maintain its stability inter­nally and externally, and ensure its free convertibility into foreign currencies.

3) Direct credit policy in such ways as to help achieve a steady growth of the national economy;

4) Organize and promote banking and supervise over the effectiveness of the banking system according to the provisions of this Law;

5) Undertake the functions of the bank of the Government within the limits prescribed in this Law;

6) Advise the Government on financial and monetary issues;

7) Maintain the Government’s reserve of gold and foreign exchange;

8) Act as the bank for banks operating in the Country;

9) Act as the State’s financial agent at the International Monetary Fund. The International Bank for Reconstruction and Development, and other international and Arab Funds and Institutions. And carry on all dealings of the State with such concerns.

Chapter Three

Capital and Reserves of the Bank

Article (6)

1) The capital of the Bank shall be 300 (three hundred) million Dirhams fully paid up by the Government.

2) The capital of the Bank may be increased from time to time by a Union Decree issued on the proposal of the Board of Directors as displayed by the Minister and approved by the Council of Ministers. In this case, the Government shall pay up the decided increase.

3) No reduction of the Bank’s capital shall be effected except by a law.

Article(7)

The Bank shall establish a General Reserve Account in the following way:

a) The Board of Directors shall at the end of each year deter­mine the Bank’s net profits for the year after deducting operational costs and making such provision as is necessary for the depreciation of assets and reserves, for bad and doubtful debts. for contributions to the pension and termination of service indemnity fund, and in general for other financial expenses normally provided for by banks from their net profits.

b) Net profits shall be posted to the General Reserve Account until the balance thereof reaches four times the size of the capital.

Article (8)

Should the balance of the General Reserve Account reach the ceiling specified in Paragraph (b) of the preceding Article, all net profits shall after that revert to the Government.

Article (9)

Should the General Reserve Account, at the end of any year be insufficient to cover the losses of the Bank occurred deficiency shall be met by the Government.

Article (10)

The Board of Directors shall, within the provisions of this Law, determine the ways in which the Bank’s own funds such as its capital and reserves and other funds maintained by it are to be employed.

Chapter Four
Management

Section One: Members of the Board of Directors

Article (11)

1) The Bank shall be managed by a Board of Directors of seven members including the Chairman, Deputy Chairman and Governor.

2) The Chairman, the Deputy Chairman and the Governor, shall have the rank of Ministers. Should the Chairman be absent or his post become vacant, the Deputy Chairman shall replace him; should both the Chairman and his Deputy be absent or their posts become vacant, the Governor shall take over.

Article (12)

1) Members of the Board of Directors shall be appointed by a Union Decree after approval of the Council of Ministers. They shall serve for four years renewable for similar four year time periods.

2) Members of the Board of Directors must be experienced in banking and financial affairs.

Article (13)

Should a member of the Board of Directors resign, or should his seat become vacant for any reason whatsoever prior to expira­tion of his term of office, a successor shall be appointed for the remaining period of the Board in accordance with the provisions of the preceding Article.

Article (14)

Members of the Board of Directors may not be members of the Board of Directors of any commercial bank operating in the United Arab Emirates, unless they are such members in their capacity as representatives of the public sector. Nor may any of the members of the Board be a Minister having cabinet status or be a member of the Federal National Council.

Article (15)

1) The Governor and the Deputy Governor shall devote their time to the service of the Bank and neither of them shall hold any office, paid or unpaid, or be a member of the Board of Directors of any bank or company, or enter directly or indirectly in contracts concluded with the public sector.

2) Notwithstanding the provisions of the preceding paragraph, the Governor and the Deputy Governor may undertake tasks assigned to them by the Government, or represent the latter at international conferences or in committees formed by the Government, or in public institutions and corporations.

Article (16)

No person shall be or remain a member- of the Board of Directors Who :­a) Has been declare bankrupt or has suspended payments; b) Has been convicted of an offense involving moral turpitude or dishonesty unless he has been rehabilitated.

Article (17)

The term of Office of a member of the Board of Directors may be terminated by a Union

Decree promulgated pursuant to approval of the Council of Ministers in either of the following two cases: a) if he commits a serious breach of duty, or any grave mistakes in management of the Bank; b) if he absents himself from three consecutive meetings of the Board of Directors without the Board of Directors’ approval, unless such absence is due to his being on official assign­ment, annual or sick leave, or for any other acceptable reasons.

Section Two:
Jurisdiction and Meetings of the Board of Directors.

Article (18)

The Board of Directors shall, within the limitations imposed by this Law, exercise all powers required for attaining the objec­tives for which the Bank has been established. In particular, the Board of Directors shall exercise the following:”

1) determine: the Bank’s credit and monetary policy as well as the policy pertaining to the investment of foreign assets, and ensure the Bank’s effective performance of its duties;

2) decide on matters relating to the issue and Withdrawal of currency;

3) Set the Bank’s by-laws and define its powers and functions in conformity with the provisions of this Law;

4) Establish rules for the discounting of commercial paper;

5) Fix the rates of discount, interest and commission to be charged by the Bank. 6) decide on matters relating to the organization of ,and super­vision over banking in accordance with the provisions of this Law;

7) Establish rules to govern the granting of loans and advances to domestic banks, define the upper limits of such loans and advances and specify the collateral security required therefor;

8) Decide on advances to the Government in accordance with the provisions of this Law;

9) Establish clearing houses and set up a Credit Risks Bureau.

10) approve the Bank’s annual budget and amend it as necessary in the course of the year;

11) approve the Bank’s final balance sheet and profit and loss account;

12) approve the Bank’s annual report;

13) set rules to govern the rights and duties of the Bank’s personnel, establish a retirement fund for them and determine the Bank’s contribution to that fund;

14) appoint the Bank’s senior staff, promote them and terminate their services in accordance with the Bank’s Staff Regula­tions.

15) deal with all other matters which, according to provisions of this Law, are within the competence of the Board of Directors.

Article (19)

The Board of Directors may delegate some of its powers to the Chairman, to the Governor, or to the Executive Committee referred to in Article (26) of this law.

Article (20)

The Board of Directors shall set rules to govern the salary, allowances and entitlements of the Governor and the Deputy Governor, as well as the remuneration and allowances of the Chairman and members of the Board of Directors. A Union Decree to this effect shall be promulgated upon approval of the Council of Ministers.

Article (21)

1) The Board of Directors shall hold an ordinary meeting at least once every forty-five days.

2) The Chairman of the Board of Directors may convene the Board of Directors whenever the need arises.

3) The Chairman of the Board shall convene the Board of Directors at the request of the Minister, or of at least three members of the Board of Directors.

Article (22)

1) Five members of the Board of Directors including the Chair­man, or the Deputy Chairman, or the Governor, shall consti­tute a quorum at any meeting.

2) Without breaching the provisions of Articles (62) and (75) of this Law, decisions of the Board of Directors shall be taken by a majority vote of the members present. In case of equal votes, the Chairman of the session shall have a deciding vote.

3) Should any member of the Board of Directors have a person­al interest in any contract or dealing in which the Bank is a party, such member must declare this interest, withdraw from the Meeting when discussing such dealing or contract. and should not participate in voting pertaining to these mat­ters

Article (23)

The Board of Directors may seek the assistance of experts and technical personnel and define their remuneration and allow­ances. It may also invite to its meetings any persons of whose advice it wishes to avail itself on any particular subject. Such persons shall have no voting power in the Board’s deliberations.

Section Three: Powers of the Chairman, the Governor, and the Executive Committee.

Article (24)

The Chairman of the Board shall be the legal representative of the Bank and shall sign on its behalf all instruments, contracts and documents. The Chairman may delegate some of his powers to the Governor.

Article (25)

The Governor shall be responsible for the implementation of this Law, the By-laws of the Bank and the resolutions of the Board of Directors. He may delegate some of his powers to the Deputy Governor or to some senior staff of the Bank.

Article (26)

An Executive Committee shall be formed to comprise: The Governor: Chairman

The Deputy Governor	: Deputy Chairman
Three Managers	: Chosen by	the Board of Directors
	from among the Bank’s Department
	Managers. The Board shall also choose
	replacements if the above are absent or
	their seats are vacated.

Article (27)

The Executive Committee referred to in the preceding Article shall consider and decide on all matters falling within its area of competence in accordance with the law and rules of the Bank as well as on any matters delegated to it by the Board of Directors or referred to it by the Governor. In particular, and within the limits of the general policy determined by the Board of directors, the Executive Committee shall:

1) determine daily exchange rates in accordance with the provisions of this law;

2) Consider and accept or reject applications for discounting loans and advances submitted to the Central Bank by local banks;

3) Buy and sell foreign instruments, bonds, notes and certificates referred to in paragraphs (4) and (5) of Article

(74) of this Law;

4) Invest the Bank’s own funds, i.e., its capital and reserves, and other funds held by it in accordance with the provisions of this Law;

5) Supervise over and ensure the proper implementation of the rules and regulations relating to the Bank’s staff.

6) Decide on matters relating to the Bank’s immovable proper­ty and real-estate rights;

7) Arbitrate, conciliate, or otherwise settle all issues affecting the Bank’s interests;

8) Propose the Bank’s annual draft budget and final account, and prepare the Bank’s annual report which is submitted to the Board of Directors along with the Report of the Auditors.

Article (28)

The Executive Committee may delegate some of its powers to the Bank’s Department Managers in accordance with the terms and conditions it may define.

Section Four: Prohibitions.

Article (29)

1) No member of the Board of Directors, manager, or any staff member of the Bank shall disclose any information he may acquire during performance of his duties concerning the affairs of the Bank, or its customers, or the affairs of banks and other institutions which are subject to supervision by the Bank, unless such disclosure is required by Law. The Bank shall not pay its employees any remuneration or benefits on the basis of profits realized by the Bank.

2) Anyone who contravenes the provisions of the preceding paragraph shall be punished by imprisonment for a period not to exceed three months and by a fine of not more than five thousand dirhams, or by either of the above two punishments, and shall in all cases be dismissed from service.

Article (30)

The Bank shall not pay its employees any remuneration or benefits on the basis of profits realized by the Bank.

Chapter Five
Operations of the Bank
Section One: Relation With The Public Sector

Article (31)

The Bank shall advise the public sector on matters falling within the Bank’s jurisdiction. It shall also advise the public sector on monetary and financial affairs presented by the latter for con­sultation with the Bank.

Article (32)

The Bank shall participate in negotiations relating to inter­national monetary and financial agreements pertaining to. the Federal Government, and it may be entrusted with the implementation of the provisions of such agreements.

Article (33)

The Bank shall carry out, free of charge, domestic and foreign banking, operations and services for the Government. It may also free of charge perform the above operations and services for the Governments of the Union’s Member Emirates.

Article (34)

Government funds in Dirham shall be deposited solely with the Bank, which shall not pay any interest thereon. , Governments of the Union’s Member Emirates may also deposit With the Bank their funds in Dirham. No interest shall be paid by the Bank on such funds. By decision of the Minister, the provisions of this Article may be applied to all or to some of the other public sector institutions. In this case, the Bank may pay interest on funds deposited with it in accordance with the requirements of the credit and monetary policy.

Article (35)

1) The Government shall deposit with the Bank the following funds in foreign currencies which shall receive no interest from the Bank:

a) The amount of contribution of the Union’s Member Emir­ates in the state’s budget. b) The Government’s other foreign exchange revenues.

2) Within two years from the entry into force of this Law, the Government shall deposit with the Bank a permanent deposit of US$ 2000 million or equivalent in other foreign currencies. This deposit, which shall receive no interest from the Bank, shall be annually raised by 10 percent over its level of the preceding year until it reaches US$ 4.000 million or equivalent in other foreign currencies. budget.

3) The other public sector entities may deposit with the Bank their foreign exchange funds which shall receive from the Bank such interest as agreed upon with the depositor.

Article (36)

The Bank shall buy foreign currencies from the public sector; or sell foreign exchange to the latter, in accordance with the ex­change rates announced by the Bank:

Article (37)

The Government shall sell to the Bank the foreign exchange it may need to achieve its objectives as well as to meet the foreign exchange requirements of the public and private sectors.

Article (38)

The investment and placement of Government funds and funds of the governments of Member Emirates, other than those deposited with the Bank under the provisions of Articles (34) and (35) of this Law, shall be outside the province of the Bank, unless the Bank is entrusted with such investment responsibilities under the terms of an agreement with the government concerned.

Article (39)

The Bank shall, either directly or through commercial banks, undertake operations relating to the sale and management of Treasury notes and bonds issued or guaranteed by the Govern­ment, or issued by any public institution or public entity in the Union’s member Emirates. The Bank may sell and purchase these notes and bonds for its own account in accordance with the provisions of Article (48) of this Law.

Article (40)

The Bank may grant interest-free advances to the Government so as to provide liquidity for the Treasury. The advances granted in anyone year shall at no time exceed 10 per cent of actual government budget revenues in the previous year.

The Government shall, not later than at the end of the financial year, repay the advances granted to it in the preceding year.

Article (41)

The Bank shall submit to the Minister quarterly reports covering the monetary and banking situation in the country, and shall provide such further information On these matters as the Minister may request.

Article (42)

The public sector, public institutions, organizations and entities which have Government participation shall provide the Bank with all information and statistics that it may require. Section Two: Relations with Local Banks and Financial Institutions

Section Two: Relations with Local Banks and Financial
Institutions

Article (43)

The Bank may open accounts in Dirham or in foreign currencies for banks and financial institutions operating in the United Arab Emirates, and may accept deposits from them without paying any interest, unless the Board of Directors otherwise decides.

Article (44)

The Bank may carry out the following operations solely with banks operating in the United Arab Emirates:

1) issue, sell and buy the Bank’s deposit certificates in Dirham

within the limits and conditions defined by the Board of Directors;

2) Sell, purchase, discount and rediscount commercial paper arising out of bonafide loans maturing within six months, provided such paper meet the requirements set in accordance with the provisions of this Law;

3) Offer loans or advances on current account for seven days without’ collateral, or up to six months against such collateral as the Bank may deem adequate;

Article (45)

The Bank may set credit ceiling for each bank operating in United the United Arab Emirates in respect to its credit operations Carried out with the Bank in accordance with the provisions, of the preceding Article.

Article (46)

The Bank shall not renew maturing bills that have been dis­counted by it nor shall accept, for discount or as a. collateral, any commercial paper signed by a member of the Board of Dire­ctors, or by any of the Bank’s staff.

Section Three: Operations in Gold and Foreign Exchange

Article (47)

Subject to the rules established by the Board the Bank may:

1) Buy, sell and deal in gold bullion and gold coins;

2) Carry out any foreign exchange and external transfer opera­tions, provided that such transactions are only with govern­ments, public institutions, local and foreign banks, central banks, and Arab and International Financial Institutions and Monetary Funds;

3) Maintain accounts with foreign central banks, foreign banks. Arab and International Financial Institutions and Monetary Funds;

4) Open accounts for central banks, foreign banks, Arab and International Financial and Monetary Institutions and Monetary Funds, and act as agent or correspondent for such banks, institutions and funds;

5) Grant advances or credits to central banks, foreign banks.

Arab and International Financial and Monetary Institutions, and obtain from them credit,-advances arid loans, provided that such operations conform with the Bank’s functions as a Central Bank;

6) Purchase, sell, discount and rediscount, through banks or financial institutions, the bonds, notes and instruments referred to in paragraphs (4) and (5) of Article (74) :of this Law.

Section Four: Other Operations.

Article (48)

The Bank may invest its own funds derived from its capital and reserves as follows: 1) to acquire real estate and movable properties necessary for

the conduct of the Bank’s business, and for housing or amenities for its staff; 2) to purchase and sell notes and loans issued or guaranteed by the Government or public institutions;

3) to purchase and sell shares in any entity in which the Movement participates, or which is granted a concession in the State of the United Arab Emirates.

Article (49)

The Bank may, by compromise or by compulsory winding up, purchase or acquire immovable and movable property in settle­ment of its due debts. Such property must be sold as soon as possible unless the Bank uses it in its operations in accordance with the provisions of this Law.

Article (50)

The Bank shall not engage in any commercial activity, have a direct interest in any commercial, industrial or agricultural acti­vity, or any enterprise, or acquire any immovable property, unless allowed to do so under the provisions of this Law.

Chapter Six
Accounts and Statements

Article (51)

The financial year of the Bank shall commence on the first day of January and end on the thirty-first day of December of each Year.

Article (52)

1) The Bank shall open a special government account the credit entries of which shall include:

a) any profit realized at the end of the financial year as a result of reevaluations, in terms of Dirhams, of the Bank’s assets and liabilities in the form of gold, foreign exchange, and Special Drawings Rights;

b) any profit realized from the withdrawal of the notes and coins referred to in Articles (70) and (73) of this Law.

2) The Account’s debit entries shall include any loss incurred at the end of the financial year as a result of devaluation, in terms of Dirhams, of the Bank’s assets and liabilities in the form of gold, foreign exchange and Special Drawing Rights;

3) Should the Account show a net credit balance at the end of the financial year, said balance shall not be included in the Bank’s profit. Should the account show a net debit balance, the Government shall cover it by issuing non-interest bearing, negotiable Treasury Bonds, which shall in turn be returned out of any net profits realized in subsequent years

Article (53)

The accounts of the Bank shall be audited by one or more auditors or auditing company to be selected annually by the Board of Directors. The Board of Directors shall also fix the auditors’ remuneration each year.

Article (54)

1) The Bank shall present to the Minister a monthly statement of the Bank’s assets and liabilities, which shall be published in the Official Gazette. 2) Within three months from the end of the financial year, the Bank shall submit the following to the President of the State and to the Minister:

a) Copy of the final accounts of the year as certified by the auditors. These accounts shall be published in the Official Gazette. b) Report on the Bank’s activities during the year and a summary of the monetary, banking, financial and economic developments.

Article (55)

The Bank may publish its annual report and may issue any reports and bulletins, which the Board of Directors deems to be in the public interest.

Chapter Seven

Miscellaneous Provisions

Article (56)

1) The Bank may accept real estate and movable property mortgaged or pledged as collateral security, or transferred to it by relinquishment in its favour as a guarantee for settlement of its claims.

2) In case its demand for an overdue payment is not met, the Bank may sell any assets so pledged fifteen days after giving lawful notice to the debtor. This right, however, does not exclude the possibility of further legal action against the debtor until full satisfaction of all claims of the Bank.

Article (57)

1) Real estate properties mortgaged under provisions of the preceding Article shall be sold by a competent court ‘at the Bank’s request.

2) The proceeds of such sales made under provisions of the preceding Article shall be used to satisfy the Bank’s claims. Any remaining balance shall be placed with the Bank at the debtor’s disposal.

Article (58)

The Bank shall be exempt from all taxes, fees, and payments of any kind on its capital, reserves, income, real estate properties, contracts and other documents. The Bank shall also be exempt from Court fees and guarantees required by law.

Article (59)

The Government shall, free of charge, ensure the guardianship of the Bank’s premises and provide the proper security escort needed for the safe transport of funds and valuables.

Article (60)

The Bank may not be dissolved except by a 1aw specifying the manner and timing of its liquidation.

“Fitting the Islamic Bank in the Arab Emirates, by Abdel Azish Dimapunung is a property of the Islamic Banking Research Institute, Inc. 2007. All Rights Reserved. Related articles by this same author include “Learning from Halliburton”, “Kampac Oil enters into contract with Amanah Islamic Bank”.

The author’s name is also spelled Abdel Aziz Dimapunong in the web.