CBL announces that first ‘‘Absolute Speculative’’ Certificates of Deposit will be issued to banks from 12 October

The Central Bank of Libya (CBL) announced today that its planned ‘‘Absolute Speculative (Mudaraba)’’ Certificates of Deposit will be issued to banks first, beginning on 12 October.

The launch of these Islamic / Sharia-compliant certificates of deposit, the CBL said, comes as part of its steps to enhance the tools and diversify resources for banks and activate several policy tools.

It will be recalled that the CBL had announced on 25 September the launch of Certificates of Deposit worth 15 billion dinars, to be issued starting from October and ending this December. The CBL said the expected annual profit margin for these certificates is 7.5% for banks and 6.5% for investment clients.

It will also be recalled that interest payment is prohibited in Libya, as per Islamic Sharia law. Hence, considering Libya’s weak political and security situation and its manifestation in a lack of confidence in the country’s banking system and the resulting cash shortage crisis at banks, there is, therefore, no incentive for citizens to deposit their cash in bank accounts.

The abundance of cash outside the banking system has helped fuel the demand for the more stable dollar in the foreign exchange black-market, rather than the value-depreciating Libyan dinar. The launch of LD 15 billion worth of certificates of deposit offering 7.5 percent to banks and 6.5 percent for investors is part of the CBL’s attempt to depress demand for the US$ in the FX black-market, defend the Libyan dinar and solve the cash liquidity crisis by attracting the hoarded dinars to banks.

It is believed that the money supply in the Libyan economy exceeded 170 billion dinars by the end of August this year, representing 8.70% of the total money supply.‎

Absolute Speculative (Mudaraba) Certificates of Deposit
The Absolute Speculative (Mudaraba) Certificates of Deposit is an Islamic / Sharia-compliant ‎‎product based on the customer’s deposit of a sum of money in an investment account‎‎. The bank invests this money in legitimate Sharia-approved activities within a certain period, according to the absolute Mudaraba formula, where the management and disposal of funds is at the bank’s discretion, without specifying an exact investment sector or activity.

This contrasts with the Restricted (Mudaraba) Certificates of Deposit where the owner of the capital stipulates specific conditions for the bank that are acceptable by Sharia, restricting the bank’s scope of investment of the capital.

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