Sudan and a Shari'a Compliant Stock Exchange
J. Robert Brown | Monday, March 9, 2009 at 06:00AM
We enjoy, on this Blog, occasionally writing about governance issues that arise in other countries. We have posted on the Saudi system of governance that includes the mandatory payment of zakat (alms) by corporations. Today we are pleased to have a post from Fayha Suleman, a student at the University of Denver Sturm College of Law about the Islamic influences on the Khartoum Stock Exchange in Sudan.
The Khartoum Stock Exchange is a relatively recent innovation. Although considered as early as 1962, the stock exchange remained stillborn through a series of governments that largely viewed free markets with suspicion. Enabling legislation was finally passed in 1992 and the Khartoum Stock Exchange began trading in 1995. With a legal and banking system based on Islamic law, the stock exchange is likewise intended to be Shari’ a compliant. There are several restrictions placed on trading in the stock exchange that are not typically encountered in western capitalist markets.
First, is the prohibition on interest (riba). As a result, bonds that pay interest and other debt instruments are not traded on the exchange. Second, trading on margin is not allowed. Purchases must be paid in full. Third, speculation is not favored. Undue risk among the participants is strongly discouraged. Finally, prohibitions of the Shari’ a are incorporated into the stock market. Investments in certain activities prohibited by the Islamic Shari’ a such as alcohol and gambling, are, therefore, not permitted. An Advisory Board consisting of three Shari’ a ulema (religious scholars) ensure compliance with these requirements.
The Khartoum stock exchange requires all public companies, insurance companies, and banks to become members of the stock exchange. In 2007, there were 53 public companies listed on the stock exchange, including approximately 18 banks. Moreover, two companies dominate the trading market and account for approximately 87% of the total equity capitalization: Sudan Telecommunication Co. (Sudatel) and Sudanese Free Zones & Markets. In addition to raising capital locally, large firms such as Sudatel are also able to list in overseas markets and access other sources of capital (although there have been reports of US pressure to prevent Sudanese companies associated with Darfur from listing on foreign exchanges).
The stock exchange, open only one hour each day (from Sunday to Thursday), is essentially overseen by the Bank of Sudan. Securities traded on the stock exchange must be of Sudanese origin unless the foreign securities are approved by the council of ministers. In addition to stock, the exchange also trades interests in investment funds, and government musharaka certificates (government securities based on "the most productive and effective of the productive units in Sudan") and shihama certificates. Shishama certificates are profit-and-loss sharing agreements used to generate finance for governmental projects. The market has shown a steady growth since its founding in 1994.
There is also a small market outside of trading hours between brokerage companies. Most of the trading activity within the stock exchange, however, involves shares in banks.
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