Syrian Arab Republic

                   Legislative decree no.35

President of Syrian Arab Republic

According to provisions of constitution stipulates the following :

Article-1-

identification :

*Islamic bank :is the bank whose memorandum of association and basic system include commitment to performing banking works without interests resulting from deposits and drawing according to banking transactions formula, which do not contradict with sharia provisions equally in approving deposits and rendering other banking services or investment and financing sectors .

*Legitimate supervisory commission consists of limited number of doctrine , sharia and lawful scientists who are appointed by general assembly of Islamic bank participants , its duty is to supervise bank ^,s works and all its contracts to ensure accordance with Islamic law provisions.

Article-2-

Establishing Islamic banks in Syrian Arab Republic is subject to legal fundamentals and legal formula as well as to procedures stated in law no.28 year 2001 concerns founding private and joint banks, cabinet issues the license decision upon the suggestion of Syrian Central Bank, and recommendation of monetary and credit council as this action is in favor of public interest , national economy needs and comply with banking market.

Article 3

Working registered banks at banks ^, registry, and after obtaining credit and monetary council approval ,are authorized  to participate in establishing Islamic banks provided adherence to the following ;

1)-Compliance with the maximum limits of entities shares in the established bank’s capital stated in law no.28 year 2001 .

2)The ratio of bank participation in establishing Islamic bank should not exceed 20% of net private money of the participating bank which determined by credit and monetary council in each case after checking the bank ^,s statue .

Article-4-

*License certificate of Islamic bank should state its capital which should not be less than five billion Syrian Pounds distributed on nominal shares the value of each share amounts to five hundred Syrian Pounds . Also this certificate declares the paid capital upon establishing bank that should not be less than (50%) of stated capital.

*The remain capital should be paid within three years from the date of bank^’s commencement  , during this period bank has the right to not distribute any profits to shareholders .

Article-5-

According to provisions of this decree the licensed bank does not have the right to assign or buy its license to any part without a previous approval of credit and monetary council .As well as any bank participating in establishing Islamic bank is not allowed to assign its shares to any part without a previous approval of credit and monetary council.

Article-6-

Islamic bank aims to the following :

*Rendering banking services and performing finance and investment works based on dealing without any kind of  interests.

*Develop means of attracting money and savings to be used in productive investment based on banking measures and ways that do not contradict with Islamic law .

Article-7-

According to conditions ,restrictions and regulations determined by credit and monetary council Islamic bank is authorized to perform the following banking transactions :

1)Accept all kinds of deposits in credit accounts , joint investment accounts or investment accounts for  appointed or not appointed times.

2)Present financial and banking cervices in addition to performing various banking transactions licensed by law no.28 year 2001 ,that do not contradict rules of Islamic law, whether they performed in the favor of Islamic bank accounts or of any part or in favor of both parties participating in the transaction .

3)Performing finance transactions based on non interest principal for different appointed times in economic sectors which comply with provisions of Sharia depending on legitimate contract formula such as Mudarabah contract Musharakah contract decreasing Musharakah contract, Murabaha selling ,Manufacturing contract, ÚÞæÏ ÈíÚ ÇáÓáã  ,

 Tenancy Operating contract ,                                 ,and other formula of finance contracts approved by legitimate supervisory commission .

4)According to Joint Mudarabah system invest clients ^, money in joint  investment accounts with Islamic bank resources , or special investment account harmonize with the agreement with the client.

5) performing direct or fiscal investment in the favor of bank ,client  account or both accounts including movable value ,Musharakah contracts ,establishing enterprises or participating in established enterprises or under establishment which practice various economic activity.

6)Other banking works based  on non interest principal correspond to legitimate supervisory commission and instructions of credit and monetary council .

Article-8-

All banking transactions and banking and investment services should be done on non interest base under any title particularly the following cases :

*Debit interest that is collected or paid in any case of lending , borrowing or deposit including any rent the borrower paid without getting any service with gain ,according to attitude of legitimate supervisory commission.

*Selling interests within the framework of banking works in exchange operations executed in fixed time , as well as interests of similar operations .

Article-9-

Except provisions of article no./1/and/2/ of law no.28 year 2001, of article no/1/and/2/ of law no.23 year2002

Islamic banks have the right to posses movable and immovable money , selling, investment ,rent ,and hire them including reclamation of land (possessive and rented ) and preparing this land for agriculture , industry ,tourism, and housing besides establishing companies and participating in projects under establishment in fields agree with provisions of Sharia while performing banking transactions in favor of clients or sharing them .these operations of possession , investment ,and participation are subject to regulations and rules set by credit and monetary council .

Article-10-

According to the decision of general assembly of shareholders as well as suggestion of broad of directors , bank appoints for three years a commission capable of renewal  at least consists of three members  of doctrine , shariah and law scientists called (legitimate supervisory commission ) its attitude accompanied Islamic bank ,it is responsible for the following :

*Supervising functions and works of Islamic bank to be in accordance to Shariah provisions without any contradictory .

*Express the commission ^,s views towards contract formula required for bank’s function and practice .

* The commission is charged by board of directors to examine any matter or pursuant to instructions of central bank of Syria .

   *Central bank of Syria will prepare acceptance and non acceptance of legitimate supervisory commission members at Islamic banks and its regulation ,then forward this to credit and monetary council to be adopted.

*Legitimate supervisory commission of the bank should present an annual report to general shareholders assembly showing bank’s commitment to Sharia provisions during the report period , in addition to commission notes and recommendations ,this report falls under the annual bank report .

*Within the appointment period , it is not allowed to depose the legitimate supervisory commission or any member in it unless the general shareholders assembly decides this .

*Administration of bank should inform Central Bank of Syria of appointment decision of legitimate supervisory commission or discharge decision or any amendment in its constitution .

Article-11-

Islamic Banks are subject to provisions of section /4/ of law no.23 for year 2002 which includes rules of regulating and supervising bank profession in Syrian Arab Republic in away does not contradict with special provisions of Islamic Bank stated in this decree .

Credit and Monetary council sets Islamic bank regulations

  Including rules and special provisions of liquidity sufficiency of capital ,investment rates , rules of calculating appropriations to be deducted to face assets risks , the council is responsible for setting rules of granted exceptions for these banks in provisions of law number /28/ year 2001 and law number/23/ year2001.upon practicing supervision attention is paid to supervisory measures of Islamic Bank issued by Islamic Financial Service council .

* Credit and Monetary council sets all or some of :

1)The maximum value of operation of certain function .

2) The maximum participation of bank in companies established by the bank or in which it has shares , besides   the maximum participation of bank in one project .

3) The maximum degree of client commitment to the bank .

4) The maximum amount to be invested outside the country as a rate of total investment .

5)Rules and conditions regulating relations among the bank and its clients and shareholders .

*Islamic Banks are subject to commitments stated in articles number /105/,/106/,/107/ of law no./23/ year 2002 to submit fiscal statements to Central Bank of Syria which can be modified by virtue of Central Bank approval to harmonize with calculating measures issued by calculation and reexamination of Islamic Fiscal enterprises .

Article-12-

*Credit and Monetary council can seek the help

of Legitimate supervisory commission consists of two consultants specialized in provisions of Sharia , doctrine and law responsible for expressing views in any case submitted by the council  relates to Islamic Bank function.

* Credit and Monetary council nominates members of this commission and set its regulation system , the members compensations determined by prime minister pursuant to Credit and Monetary council suggestion.

Article-13-

-Islamic Bank administration should inform shareholders and depositors by regular written statements  about the risks of bank’s investment , its consequences and rates. It must recognize among credit deposits , joint investment deposits and specialized investment deposits .

-Internal bank supervisors and supervisors of governmental legation at the bank ensure bank’s commitment to duties stated in this article.

Article-14-

Islamic Bank should preserve a reservation account (fund )to face risks of joint investment accounts in order to cover any loss resulting from joint investment at the end of financial cycle ,the finance of this fund as follows :

*Deducting the rate of 10% from the net profits of joint investment accounts resulting from transactions occurred during the year .

*The above mentioned rate can be increased in accordance to instructions of Credit and Monetary Council .

When amendment took place the ratio is considered valid in the fiscal year following the year in which the ratio is amended

* Deduction cease when the collected amount in the fund equals double amount of the paid capital of Islamic Bank , or another amount determined by Credit and Monetary council.

*The above mentioned deductions are exempted from Current capital tax .

Article-15-

1)Islamic banks participate in clearing and settlement system directed by Central bank based on rules do not contradict Islamic law provisions .

2) The Central Bank is responsible for part of or all of the following ;

*Opening accounts in the favor of Central Bank in Syrian Pounds or Foreign currency at Islamic Banks.

*Opening accounts in the favor of Islamic banks in Syrian Pounds or Foreign currency at Central Bank.

*Islamic banks grants short and medium term finance using means and ways do not contradict with Shaiah provisions .

*Selling and purchasing stock exchange and other means from Islamic Banks according to provisions of Sharia .

*Issuing means agree with provisions of Islamic law pursuant to conditions and limits issued by Credit and Monetary council, authorities that are subject to Central Bank’s supervision and control.

Article-16-

1)Liquidation of Islamic Banks is accomplished according to measures determined by Credit and Monetary council depended on valid legal rules in away does not contradict with particular conditions of Islamic Banks mentioned in this decree

2)Due debts and commitments of Islamic banks under liquidation are settled as follows :

*A liquidator will be compensated with amounts equals  costs and expenses resulting from liquidation .

*Rights of bank employees and servants such as salaries and due compensations  will be paid by virtue of valid regulations .

*Depositors rights in credit accounts .

*Due taxes and duties of general treasury .

*Depositors rights or any deposits in the bank for purposes other than investing and sharing the resulting profits .

*Depositors rights in joint and specialized investment accounts according to the following :

1-Rights of depositors of joint investment accounts will be paid according to its conditions provided bearing these rights all costs and expenses of liquidator ,then the related liabilities ,credit and Monetary council determines way of using the balance  of investment risks  fund after settling all costs and losses resulting from investment and because of this the fund has been created .

2- Rights of depositors of special investment accounts are connected to investment consequences ,they bear these consequences on the                                        after deducting liquidator,s costs and expenses .

*Liquidation of shareholders rights of Islamic Banks (under liquidation ) executed on the base of distributing the remain money as share rates to each stockholder .

Article-17-

-All shares of investment profits of Islamic Bank deemed as an income which is subject to tax imposed on banks .

-According to law number 24 year 2003 and its amendments ,the distributed shares of investment profits among investment shareholders are subject to tax of current capital .

Article-18-

*Contracts Concluded by Islamic Banks while rendering Islamic banking services and transactions are exempted from profits tax and stamp duty tax .

Article-19-

According to provisions of this decree the established Islamic Banks are subject to valid laws and regulations in Syrian Arab Republic in particular provisions of law /28/ year 2001, of law/29/year 2001, of law /23/ year 2002 ,of anti-money laundering law issued in legislative decree no.59 year2003, commerce law no.149 dated1949 with its amendments ,and in accordance to valid banking rules regarding  any case not mentioned in the context of this decree .

Article-20-

Credit and Monetary Council issues instructions and interpreting texts related to this decree .

Article-21-

This decree should publish in the official newspaper .

Done in Damascus 26/3/1426 A. H.                 4/5/2005.

President of Syrian Arab Republic

BASHAR AL-ASSAD