The Central Bank of Libya (CBL) announced today that its Central (Islamic) Sharia Supervisory Board confirmed the religious validity of the foreign currency exchange transaction for personal purposes following a review.
Dar al-Ifta’s September objections
This comes in response to objections raised in September this year by the Libyan Dar al-Ifta (the highest religious entity that interprets Islamic law and practice in Western Libya) in Tripoli which had issued a memorandum regarding regulations for foreign currency transactions—specifically those involving personal use, unrestricted ''Mudaraba'' (profit-sharing investment), and banking commissions.
It called on the Central Bank of Libya, commercial banks, and exchange companies to review and rectify their procedures to ensure compliance with Islamic Sharia law (Islamic compliant finance).
In today’s response to September’s Dar al-Ifta objections, the CBL said there is no religious objection to individuals utilizing this service, as it is free from elements that violate Sharia principles.
The "dollar reservation" transaction does not set a binding exchange rate for the customer at the time of reservation, nor does it entail a transfer of dollar ownership to the customer, an obligation to purchase the currency, or a binding commitment between the parties at the reservation stage.
The Academy’s resolution regarding currency trading stipulates that deferred-delivery currency sales and agreements to exchange currencies at a future date are not permissible under Sharia law.
The Unrestricted Mudaraba Certificates of Deposit implemented by the Central Bank were not the result of an individual initiative; rather, they were the product of a multi-stage institutional, technical, and Sharia-compliant process involving specialized and experienced entities.
Specialized international expertise was utilized through cooperation with experts from the Islamic Development Bank and the participation of a resident advisor specializing in Islamic liquidity management instruments.
The Board’s role went beyond mere formal approval; it conducted a rigorous Sharia review of the product, introduced necessary controls and amendments, and verified its freedom from elements of ‘‘Riba’’ (usury) and ‘‘Gharar’’ (excessive uncertainty/speculation).
The Unrestricted Mudaraba arrangement fully complies with its essential pillars and Sharia-mandated controls.
The Central Board established a supervisory framework to prevent the indicative return from transforming into an explicit or implicit guarantee of the principal capital or the return itself.
The CBL affirmed that its performance of this supervisory role is a mandate regulated by applicable legislation. It said its adoption of the formula constitutes the binding institutional Sharia reference in this domain.
The CBL said legitimate scholarly discourse fosters confidence rather than sowing discord; the complementarity of roles—within the clear scope of authority defined by law for each entity—is the fundamental principle the CBL upholds and advocates.
It said it discharges its duties based on Sharia grounding, technical verification, institutional review, and oversight of implementation.
It said it is committed to enhancing mechanisms for disclosure and communication regarding its decisions, thereby clarifying the basis of its rulings and preventing confusion or ambiguity.
As noted earlier, Dar al-Ifta had called in its September opinion for the abolition of the mechanism that pre-determines the exchange rate at the time of booking, noting that stipulating a deferred price is not permissible under Sharia. It explained that the system should merely reserve the right to place an order, with the actual exchange rate and the exchange of funds (taking possession) agreed upon at the time the transaction is executed.
Dar al-Ifta also affirmed that it is impermissible to require financial guarantees from exchange companies simply for acting as agents—provided there has been no transgression or negligence—and emphasized the need to halt and refund commissions imposed on them, as these lack a basis in actual service or benefit.
Furthermore, Dar al-Ifta stated that subscribing to the "Unrestricted Mudaraba" product announced by the Central Bank of Libya is not permissible until the contracts and documentation have been fully reviewed to verify compliance with the Sharia rules governing ''Qirad'' (profit-sharing partnerships).
It also stressed that no commissions or fees should be deducted from customer accounts (such as cash withdrawal or ATM fees) without the provision of a distinct, actual service or benefit, and emphasized the necessity for banks to disclose all fees and their details prior to entering into agreements.
Libyan Dar al-Ifta Issues Sharia Guidance on Banking and FX Practices