VZCZCXRO4724
PP RUEHROV
DE RUEHKH #1882 2210425
ZNR UUUUU ZZH
P 090425Z AUG 06
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 4057
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS KHARTOUM 001882 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR AF/SPG, AF/EPS, AND EB/IFD 
DEPT PLS PASS USAID FOR AFR, AND ALSO PASS USAID 
 
E.O. 12958:  N/A 
TAGS: EFIN PGOV ECON EAID SU
SUBJECT:  Islamic Banking in Sudan 
 
 
¶1.  Summary:  A banker in Khartoum offered his insights into the 
operation of Islamic banking in Sudan.  No global standard exists 
for Islamic banking, and practices allowed in other Islamic 
countries are not permitted in Sudan. Rigidities of Islamic banking 
raise costs, and, given the option, many clients in the North would 
use conventional banks in the South.  Nevertheless, he said his bank 
would not be opening in the South for at least a couple of years, 
largely due to lack of infrastructure.  The exchange rate may go to 
180 Dinar to the Dollar by early 2007. Microfinance would be a 
useful addition to the financial sector in Sudan.  End Summary. 
 
No Single Islamic Standard 
-------------------------- 
 
¶2.  A meeting on August 3 with Nadim Ghantous, General Manager of 
Byblos Bank in Khartoum, provided Econ Officer and Econ/Commercial 
Specialist with an overview of the operation of Islamic banking in 
Sudan.  Byblos is based in Lebanon, with its single office in 
Khartoum operating as an Islamic bank.  He underlined that there is 
no global standard of Islamic banking; the interpretation of what is 
permissible in Sudan is different from Bahrain, for example.  Hoping 
to get approval for certain practices, he had obtained a copy of a 
code of Islamic banking practices in Bahrain and furnished it to the 
authorities in Khartoum, expecting that approval would be routine. 
He was surprised, however, that the Sudanese authorities reviewed 
the Bahraini document phrase by phrase and declined to allow some 
practices here that are allowed in Bahrain. 
 
Stringent Requirements re Arrears, Overdrafts 
--------------------------------------------- 
 
¶3.  One peculiarity of Sudanese banking is that any client falling 
in arrears by more than 90 days must be reported to the central 
bank.  The name of such clients is circulated to all banks.  All 
banks are required to stop dealing with an individual on the list. 
One result of this system is that it is difficult for a firm 
experiencing temporary problems to restructure its debt or work out 
refinancing.  Short-term financial difficulties can be exacerbated 
by the fact that the use of overdraft facilities is not allowed in 
Sudan.  Ghantous said that this absence is both inconvenient and 
costly to clients here. 
 
Asset Purchases and Business Ventures Complex 
--------------------------------------------- 
 
¶4.  Under Islamic banking, banks arrange to purchase an asset (e.g., 
a car) on behalf of a client, and then sell it to the client with a 
set mark-up in price, with repayment spread over time, (Morabha 
operation).  In making business loans, the bank becomes the partner 
for the business, taking a part of profits rather than interest 
(Mosharka operation or partnership).  Ghantous said that this latter 
arrangement can be lucrative for the bank when the business is 
profitable, but it does require much closer attention to the 
operations of the company than when a conventional loan is made. 
 
Exchange Rate - 180 Dinar to the Dollar? 
---------------------------------------- 
 
¶5.  Commenting on the general economic trends, Ghantous said that 
the dinar/dollar exchange rate is likely to go to 200/1 by year end 
and perhaps 180/1 by early 2007.  The falling exchange rate has 
benefited foreign-based banks like his.  He confirmed that the 
one-year Sudanese treasury bonds yielded 29 percent in Dinar terms, 
or 45 percent in dollar terms.  This yield, which is not interest 
but a type of profit-sharing, was boosted by the privatization of a 
government-owned mobile phone company during the past year. The 
market for treasury bonds is limited, as foreigners are not allowed 
to buy the bonds and any buyer is limited on the amount that can be 
purchased. 
 
South Hurt by Lack of Infrastructure 
------------------------------------ 
¶6.  Ghantous said that his bank had looked into opening an office in 
Juba, but had decided not to, at least for the next two to three 
years.  He said that the lack of infrastructure is the main problem, 
but the lack of government incentives also an important factor. 
When he asked the GoSS what it incentives it would provide for 
Byblos Bank to open, the reply was security and protection of 
initial capital.  Ghantous said those should be givens, what the 
GoSS needs to offer is tax incentives, building sites, or other 
incentives.  He said that when conventional banking opens in the 
South, it would probably draw business from the North.  Businesses 
in the North would find it cheaper and more convenient to use the 
conventional banking system in the South, he predicted.  How this 
will function legally remains to be seen, but Ghantous is confident 
that the details can be worked out.  He concluded by noting that 
facilities for micro-finance are needed in Sudan, as very small 
businesses have no access to credit. 
 
HUME