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South Sudan orders Islamic banks to leave

Wed Feb 6, 2008 10:38am EST

By Skye Wheeler

JUBA, Sudan, Feb 6 (Reuters) – Three Islamic banks in Sudan’s semi-autonomous south are liquidating assets ahead of a deadline to close at the end of February, a south Sudan government official said on Wednesday.

Under a 2005 peace deal to end decades of civil war between the Islamist government in Khartoum and the mainly Christian and animist south, only conventional banking will be used in the south with Islamic banking in the north.

Banks were given the option last year to close up or adopt only conventional banking.

“They have opted to keep with Islamic banking,” Kornelio Koriom, deputy manager of south Sudan’s central bank, told Reuters.

The Faisal Islamic Bank, the Omdurman National Bank and the Agricultural Bank of Sudan will close all southern branches and take with them some $45 million.

But Koriom said new banks would fill the gap and supplement local banks that lack capital and have less management experience. Kenyan Commercial Bank will be joined in March by the Sudanese Egyptian Bank and Dubai’s Arab Investment Bank.

Koriom said Islamic banking practices to avoid paying interest, which is against sharia law, would stop in the south.

Such practices include giving seeds and money to farmers but getting extra produce in return rather than cash. It would also mean the end of the practice where bank and entrepreneur invest capital together and each take their share of profits.

The 2005 deal ended Africa’s longest civil war which claimed 2 million lives and drove more than 4 million from their homes. It also gives the south a referendum on secession in 2011.

Although the south is exempt from U.S. sanctions placed on Sudan over accusations it supported terrorism, Koriom said the south was still having to find ways around the sanctions.

“We are institutionally tied to the central Bank of Sudan. When we make transfers, for example to South Africa it doesn’t go through,” said Koriom. A separate Swift code given to the south last year has not yet provided a solution.

“(Sometimes) when it is discovered we are sending from Sudan we are not allowed to enter the system,” Koriom said.

(Editing by Opheera McDoom)

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