A Note on Response to the Document “Request for Expression of Interest (Consultant Services) – Development of Sukuk Market in Afghanistan” Issue by Da Bank Afghanistan

1. Please read this note along with the DAIMG comments on the Draft Sukuk Law (attached).
2. DAIMG requests that Document issued by Da Bank Afghanistan should not be captioned as “Islamic Republic of Afghanistan”. Afghanistan is an Islamic Emirate, not a republic. Currently a Republic is a necessarily a capitalist state formation. “Republic is not a translation of the word “Emirate”. The word Emirate is already used in English – as shown by the use of the word “Emirate” by the United Arab Emirate.
3. DAIMG is in principle opposed to the development of a Capital (Shares/bonds) and money market in the Islamic Emirate as this involves continuous trading in securities and the emergence and consolidation of capitalist property making gharar (speculation) the bases of transations.
4. Therefore the Sukuk securities that may be issued should be different from Sukuk securities issued by other countries in national and international markets. We propose that the Sukuk issued by the Islamic Emirate be called “Special Sukuk Securities (SSS).
5. The Special Sukuk Securities may have the following features:
6. SSS should be issued for a fixed time period (say a year or six months) during which period the owner of the SSS must compulsorily hold them.
7. Values of shares must remain fixed throughout their period of existence.
8. At the end of the period for which the shares have been issued they may be sold by the original investor taking account of the rate of return realized by the investment of these securities in productive industries. At this stage SSS may also be re-priced taking account of their existing and expected performances.
9. Trading is thus permitted at fixed time periods. Trade may take place in the form of purchase by new investors or buy back of SSS by the issuer (the government of the Islamic Emirate).
10. The existence of an over the counter market for the periodic trade of SSS should not be allowed as this is a first step towards legitimating capital property.
11. The industries activities in which SSS realized funds are to be invested should be carefully selected as rate of return on SSS should be determined strictly on the basis of the actual profitability of these industries. DAIMG recommends that priority be given for investment of SSS funds is (a) anti-aircraft and drone technology (b) IT sector and (c) agricultural marketing services.
12. The size of the SSS first issue should be determined on the basis of an estimate of the required investment in the sectors/companies in which the SSS realized funds are to be invested. This requires an assessment of the existing net assets (assets minus liabilities) of the companies in which SSS realized funds are to be invested and an estimation of required addition to their assets over the fixed time period.
13. The price of the Sukuk (discount rate) should be determined solely on the basis of the expected rate of profit to be realized by the investment of SSS given time period. At time of trade (one year or six months after original issue) the discount rate should be re-assessed on the basis of profits realized as well as profit expected for the next tradable time period.
14. We understand that a major purpose of the issuance of Sukuk is to attract foreign investment but listing SSS on international buyers is not permissible since this necessarily involves continuous gharar. Listing SSS on major national/international buyers must not therefore be envisaged.
15. However private placements in countries such as Iran, Pakistan, Turkey, Malaysia and Qatar as designed to eliminating the gharar element in SSS transactions are possible. The madrassah network and selected Islamic business forums may be mobilized for private placement of SSS in the above countries.
16. Ulema must be included in the management structures of the SSS transaction.
17. The Islamic Development Bank is a partner of the World Bank groups like the Asian Development Bank and the African Development Bank – and is likely to seek incorporation of the Afghan financial system within the global capitalist money and capital market network. This must be resisted to safeguard the Islamic authenticity of the Islamic Emirate’s monetary and credit policy. Integration within global financial market structures necessarily involves subordinating national economies to capitalist global indebtedness thus undermining their national sovereignty. One of the Islamic Emirate’s strategic strength is its total lack of global embeddedness. This strength must be safeguarded at all costs. Issuing bond instruments on international buyers is a means of subordinating the national financial system to global debt dominance. We must therefore try to persuade the IDB to accept SSS structuring not in the trade but in a manner which avoids ghara and does not link to the emergence of capitalist property in the Islamic Emirate.
18. Finally in our opinion since sukuk (bonds) are not a form of ownership therefore they cannot be issued by the private sector or a stock exchange. They must be issued by the government of the Islamic Emirate.