National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
136
Bankruptcy and Resolution of Banks
While bankruptcy of individuals is governed by the Bankruptcy Act of 1929, bankruptcy of
companies including banks is governed by the Companies Act of 1925 amended in 2015. The
amendments made to the Companies Act 2015 include clauses that comply with contemporary
bankruptcy rules and practices. For instance, Chapter Five of the law provides the rules of
merger (Companies Act, 2015). The Property Mortgaged to Banks (Sale) Act, 1990 (PMTBSs)
Act of 1990 along with the Companies Act of 1925 amended 2015, and Bankruptcy Act of 1929
work together to protect banks and enforce the repayment of unsettled bank credit facilities.
PMTBSs 2003 states that a bank may enforce the repayment of debt without recourse to a
court of law. The Act stipulates an easy and simple process whereby a bank gives short notice
to the defaulter to pay the outstanding credit amount, and, in case it is not settled, can proceed
immediately with the sale of the mortgaged collateral, usually real estate, in a public auction. It
also spreads on the recovery of pledged movable property. While sukuk issuance, regulations,
and requirements are stipulated in the Financing Sukuk Act of 1995, there are no special
bankruptcy laws to deal with sukuk. Chapter Three of the Act states the rules of establishing
the Sukuk Issuance Committee and defines its main activities. Clause number (22), chapter
four of the Act determines the sanctions against breaching the law by minimum one year
prison or fine or both, (Sukuk Act, 1995). No special rules deal with cross-border sukuk or
investment instrument.
4.10.2. Financial System Regulation and Supervision Framework
The Financial sector in Sudan comprising banks, nonbank financial institutions, takaful
companies and capital market is regulated and supervised by three main regulators. The CBOS
Act 2002 amended 2006 and 2012 and Banking Business (Organization) 2003 gives authority
to CBOS to regulate and supervise banks and nonbank financial institutions such as exchange
bureaus, ijarah companies, microfinance institutions, guarantee mutual funds and sukuk
(CBOS, 2012). CBOS was one of the main founding members of the IFSB, (Elzubair, 2013). It has
instructed banks and financial institutions to adhere to the IFSB Standard Guidelines for
Islamic financial institutions, (CBOS, 2009; CBOS, 2015). The Basel Committee on Banking
Supervision (BCBS) framework in Sudan is adopted by the amendments and adaptation of the
IFSB standards in order to comply with Shari'ah principles. As such, banks in Sudan utilize the
formula provided by IFSB in calculating the capital adequacy ratio (CAR) (Mejia et. al. 2014).
Shari'ah compliant instruments that can meet the Basel 3 Tier 1 and Tier 2 capital
requirements are not adequate. However CBOS and Sudan Banks Union (SBU) are trying to
find Shari'ah tolerable instruments. Sudan applies the same standards of the most important
bank financial soundness indicators (FSIs) that have been issued by the IFSB in light of the
Basel framework such as CAR, assets quality ratios, profitability, liquidity ratios, etc. (CBOS,
2014).
Insurance and Reinsurance Companies in Sudan are regulated by the Insurance Regulatory
Authority (ISA) under the Minister of Finance and National Economy. Until the year 1992, the
insurance industry in Sudan was regulated by the Controller of the Insurance Act of 1960
which remained effective and applied to both conventional and Islamic Insurance and
Reinsurance Companies. Significant changes were made to the insurance legal system in 1992
when the insurance industry was transformed from the dual insurance system to complete the
Islamic Shari'ah system (Sulieman, 2013).