Financial Institutions

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Financial Institutions Instruments Tax
Challenges Developments
The 3rd ITD Conference

• Mr. Omer Mahgoub Ali Altoum
• Tax Advisor
• Dr. Eltegani Abdel Gadir Ahmed
• Advisor, MOF

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The 3rd ITD Conference

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• 
  
  (278) ???? ??????
• O ye who believe! Fear Allah and give up
  what remains
• of your demand for riba, if ye are indeed
  believers.
• The Holy Qur'an in verse 278 of Surah Al-
  Baqarah

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The 3rd ITD Conference

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• 
  
  (279) ???? ??????
• If you do it not, take notice of war from Allah
  and His Messenger. But if ye turn back, ye shall
  have your capital sums. Deal not unjustly and you
  shall not be dealt with unjustly.
• The Holy
  Qur'an in verse 279 of Surah Al- Baqarah

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The 3rd ITD Conference

• Overview
• Sudan Economy
• The Financial Sector
• The Banking Sector
• The non-banking Sector
• Lessons Learnt

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Introduction
The 3rd ITD Conference

• Sudan is an agricultural country.
• The agricultural sector
• 80 of the workforce
• Contribution 35 of the GDP
• Economic Growth was strong. It increased by 10
  2007
• Now there is a notable Change due to the
  production of oil.

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The 3rd ITD Conference

• The financial sector in Sudan can be categorized
  into two distinctive segments
• The Banking Sector which includes
• The central bank of sudan
• 29 Commercial Banks
• 4 Specialized Banks

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The 3rd ITD Conference

• The Non- Banking Sector which includes
• Khartoum stock exchange
• The bank deposit security funds
• Insurance companies
• Foreign exchange bureau

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The Banking Sector in Sudan
The 3rd ITD Conference

• The Banking System is the sole supplier of
  banking activities in the country.
• The central Bank of Sudan (CBOS) is the bank of
  the government, its advisor and agent.
• CBOS is considered as a market organizer and
  supporter of the banking system.

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Performance of the banking sector
The 3rd ITD Conference

• The overall performance of the banking sector for
  the past three years is positive.
• The volume of the banking sector consolidated
  balance sheet increased by 36 in 2006 and by 13
  in 2007.
• Total deposits increased by 23 in 2006, and by
  135 in 2007.
• Advances increased by 45 in 2006, and by 17 n
  2007.
• Equity increased by 67 in 2006 and by 18 in
  2007.
• The ratio of advances to liabilities jumped from
  48 to 93

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Performance of commercial banks
The 3rd ITD Conference

• number of operating commercial banks by end of
  2008 totaled 32.
• The liberalization of the fiscal and finance
  policies related to the banking sector lead to
  the increase in banking finance from SDG 837.682
  in 2006, and to 1.125.000 in 2007.

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The Non-banking Financial Sector
The 3rd ITD Conference

• The non-bank financial sector is a key player in
  the Sudanese economy and in particular in the
  banking sector.
• As a matter of fact, the banking sector relies to
  a large extend on the financial resources of this
  sector.
• Let me shade some light on the performance of the
  non-banking sector.

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Insurance Companies
The 3rd ITD Conference

• There is more than 15 insurance companies
  operating in Sudan.
• The insurance companies invest their fund in
  securities, sukuks and real estate as well as
  deposits.
• The overall performance of insurance companies is
  growing.

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Exchange Bureaus
The 3rd ITD Conference

• The foreign exchange bureaus are private
  companies specialized in foreign exchange
  dealings.

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Khartoum Stock Exchange (KSE)
The 3rd ITD Conference

• The Khartoum Exchange (KSE) was established in
  1994.
• The main objective of (KSE) is to establish a
  profound capital market, and to increase the
  inflow of direct foreign investments.
• KSE also provides the services of both the
  primary and secondary markets, and raises the
  public awareness of investment opportunities.

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Sudan Financial Services Company
The 3rd ITD Conference

• The Sudan Financial Services Company (SFSC) is
  fully owned by the central bank of Sudan (CBOS),
  and the Ministry of Finance and National Economy.
  
• Among its main objectives, (SFSC) is to assist in
  the management of liquidity at the macro level.
  It also promotes dealing through the capital
  markets.
•  

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National Social Funds
The 3rd ITD Conference

• In Sudan, the most known social funds are, the
  National Pension Fund (N. P. F), the National
  Social Insurance Fund (NSIF) the Deposits
  Security Fund (D.S.F).
•  

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Lessons learnt
The 3rd ITD Conference

• The progress achieved by Sudan in financial
  reforms has been substantial.
• Overall, as with any other economic reform,
  financial reform is one important face of the
  coin - the other is social progress.
• The Government of Sudan has been supportive of
  Islamic finance.

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Islamic finance in Sudan
The 3rd ITD Conference
Dr. Eltegani Abdel Gadir Ahmed Adviser
President Higher Consultative Committee for
Government Securities, Ministry of Finance,
Sudan
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Contents
The 3rd ITD Conference

• Introduction
• Sukuk in Sudan
• Mechanism
• Taxation
• Conclusion

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Introduction
The 3rd ITD Conference

• Both Islamic finance and financial system trace
  their history back to the establishment of Faisal
  Islamic Bank, in 1977.
• However, the bank commenced its operations in May
  1978 with the objective of conducting all forms
  of financial activities disseminated all-over
  Sudan

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The 3rd ITD Conference

• Two Financial papers based on Islamic modes of
  Finance.
• Shihama is based on Musharakah.
• Srh (Government Investment Certificates) GIC
  based on Mudarabah, Ijarah, Murabahaetc.

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The Higher Consultative Committee for Government
Securities
The 3rd ITD Conference

• Due to success in the first generation of Sukuk
  (Shihama), the Committee is established.
• It consists of complementary membership,
  including Ministry of Finance, Central Bank of
  Sudan (CBS), Khartoum Stock Exchange (KSE),
  Universities.

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Sukuk
The 3rd ITD Conference

• All parties participated in issuing Sukuk are
  represented in the above mentioned Committee.
• The advantage of issuing government sukuk is
  that they are based on actual, tangible assets.
• Such instruments help to contain the inflation
  level.

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Mechanism
The 3rd ITD Conference

• Issuance of Sukuk depends on four parties
• Investors (provider of capital money)
• Mudarib (SPV) Agent (Wakil) manager
• Ministry of Finance National Economy MoF
  (fiancée)
• Khartoum Stock Exchange (platform for selling and
  buying Sukuk negotiation.

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The 3rd ITD Conference

• Investors (Rab al Mal)
• Sudan Financial Services Co. (sfs) Mudarib
• MoF ( User of the finance)
• KSE
• KSE is the platform where Sukuk are sold and
  bought in the secondary market

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Features
The 3rd ITD Conference

• Matches with Shariah requirements
• Cash, un-inflationary finance
• Helps in managing supply of money, open market
  operations
• Mobilization of funds outside the banking
  system
• Used as collateral

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Srh
The 3rd ITD Conference
Srh is a financial document with nominal value
in Sudanese pound (SDG), gives its holder the
right to participate in financing the Government
(MoF) through certain modes of finance, for the
purpose to generate profit
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Mudarabah
The 3rd ITD Conference

• Mudarabah is a partnership in which one party
  provides the money (capital), while the other
  party provides the professional, managerial and
  technical know-how for starting and/or operating
  a business enterprise or project.
• The profit is shared in a pre-agreed ratio.

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Shihama
The 3rd ITD Conference

• Financial pool is established consists of the
  ownership of the government in certain companies.
• The pool will be divided into financial papers
  (Sukuk).
• Sukuk will be sold to the investors.
• Profit is computed based on the financial
  performance of the companies.

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Istisna
The 3rd ITD Conference

• Istisna is an agreement meeting the clients
  need for an item, equipment, building, or
  project, which needs to be constructed,
  manufactured, or assembled.
• It is a contract in term of which a person buys
  on the spot something that is to be manufactured
  which the seller undertakes to provide after
  manufacturing same using materials of his own
  according to designated Specifications against a
  determined price.

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Ijarah
The 3rd ITD Conference

• Ijarah(lease of objects) is the selling of a
  defined benefit against a specific consideration
  for a fixed period.
• Ijara certificates of the Bank of Sudan (CICs)
  are backed by the buildings owned by the central
  bank.
• According to the law, Sudanese banks must invest
  up to 30 per cent of deposits in CICs.

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Murabaha
The 3rd ITD Conference

• Murabaha belongs to the class of contracts in
  Islamic jurisprudence, called trust sales (Bia
  amana).
• It has been recently developed to act as the
  major financing mode in Islamic banks in place of
  the forbidden interest- rate financing.

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Taxation
The 3rd ITD Conference
The tax treatment of Islamic finance Instruments
may differ depending the characteristics and
local tax law requirements of each country. The
ease of the tax burden is the major aim of the
program of tax reform. Islamic Insurance was
given a range of tax incentives. In Sudan, there
is also a separate Chamber for Zakat
collection.

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Taxation (cont.)
The 3rd ITD Conference

• The stamp duty is levied at a rate of 0.5 of
  the principal amount.
• The Sudanese Income Tax Act does not tax those
  instruments.
• The VAT Act exempted them as a part of financial
  services.
• Profit of Shihama is also exempted form taxes in
  Sudan.

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Conclusion
The 3rd ITD Conference

• Islamic finance is finance that is consistent
  with the principles of Shariah.
• Sudans Islamic economic system has proved to be
  effective.
• It has been developing continuously since the
  establishment of the countrys first Shariah-
  compliant bank in 1978.
• Among the countries that have introduced Islamic
  banking and finance, Sudan claims to have its
  financial systems in complete conformity with
  Islamic principles.

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The 3rd ITD Conference
THANK YOU

• Sudan