Diversification of Islamic Financial Insturments
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To examine the extent to which Islamic banks are committed to Shariah compliance, it is
important to identify the nature of the financial transactions in Islamic banks (Babiker 2011).
According to El-Hawary et al. (2004) the financial products in Islamic banks are guided by four
concepts:
 Risk-sharing which should be applied between all parties of a financial transaction.
 Materiality which should exist to link transaction to the real economy.
 No exploitation should be practiced by any of the transaction’s parties.
 No finance to be given to any unlawful activities or any prohibited products.
It is clear that Murabahah is the main financing mode in Sudan although it’s practised to a less
extent than other countries. According to (Babiker 2011), he argues that Islamic banks have to
be restructured in a “bank-based” architecture to implement the classical Murabahah (similar
to that of Germany and Japan) in the spirit of the Shariah. Here, the Islamic bank would own
either voting shares ( Musharakah) or non-voting shares (Mudharabah) of a merchant/trader.
It’s worthy to mention here that due to the intensive use of this mode, the Central Bank of
Sudan issued a decree in 2000 ordering all banks to decrease their dealings based on
Murabahah to 30% and to increase their transactions based on other modes (decree no. 29 A,
2000, 4) (Abdel Mohsin, 2005). However, what’s seen from table (Flow of Banking Finance) is
that still, Murabahah was intensively used (almost 50%) in the year 2015.
According to Ibrahim, 2001 as cited in Abdel Mohsin (2005), the mechanism used to decease
the use of Murabahah mode by all Islamic banks in Sudan are quoted below as provided by
Central Bank of Sudan: “Decreasing the share of Murabahah in Sudan is carried out in various
mechanisms: first by decreasing the Murabahah margin in the annual financing policy of the
central bank, second by imposing certain procedure conditions on the Murabahah application so
as it make it difficult for the bank and unappealing to the client, and third by the periodical
review of the local bank’s statistical reports and the share or the Murabahah and thus imposing
sanctions on the bank”.
It is believed that some of the reasons of preference and tendency of using Murabahah72 in
Sudan can be related to lower associated risks, easy to apply with clear modus operandi, and
easy to explain to clients, pre-known profits comparing to Mudarabah and Musharakah. Hence,
this helps the bank to plan its cash flows, short-term financing compared to other modes, fast
rate of working capital turnover and high demand by customers. On the other hand, it’s
notable that the usage of Muqawalah, which is very close to Istisna and has important role in
developing real estate sector, is widely practiced in Sudan and which is a distinguish feature in
the Sudanese banking system that should not be underestimated.
72 Note that in Sudan Murabahah is used only for short-term financing (mainly for consumer durable goods and vehicles)