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CAPITAL ADEQUACY STANDARD (CAS) CATERING FOR SPECIFIC STRUCTURES AND CONTENTS OF SHARI'AH NOT SPECIFICALLYADDRESSED BY BASEL II GUIDELINES Prof. Dr. Mohd.

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Presentation on theme: "CAPITAL ADEQUACY STANDARD (CAS) CATERING FOR SPECIFIC STRUCTURES AND CONTENTS OF SHARI'AH NOT SPECIFICALLYADDRESSED BY BASEL II GUIDELINES Prof. Dr. Mohd."— Presentation transcript:

1 CAPITAL ADEQUACY STANDARD (CAS) CATERING FOR SPECIFIC STRUCTURES AND CONTENTS OF SHARI'AH NOT SPECIFICALLYADDRESSED BY BASEL II GUIDELINES Prof. Dr. Mohd. Ma’sum Billah

2 KEY ISSUES  Overview of Islamic Capital Adequacy Standard (i-CAS)  Principles For Minimum Capital Adequacy Requirements Are To Discover Risks In Various Avenues Of Islamic Financial Management  Mechanisms for Minimizing Financial Risks  Consequential Impact for Failure to Manage Financial Risks

3 Overview of Islamic Capital Adequacy Standard (i-CAS)  Basel I International Convergence of Capital Measurement and Capital Standards, July 1988  Basel II International Convergence of Capital Measurement and Capital Standards: A Revised Framework, June 2004  IIFS Institutions (other than Insurance Institutions) offering only Islamic Financial Services  IFSB Islamic Financial Services Board.  i-CAS Islamic Capital Adequacy Standard (Lead by IFSB).  The proposals contained in i-CAS are primarily based on the Basel Committee on Banking Supervision’s documents on the (a) International Convergence of Capital Measurement and Capital Standards: A Revised Framework, June 2004 (Basel II) and (b) Amendment to the Capital Accord to Incorporate Market Risks, January 1996 (1996 Market Risk Amendment), with the necessary modifications and adaptations to cater for the specificities and characteristics of the Sharī`ah compliant products and services offered by the IIFS.

4 Principles For Minimum Capital Adequacy Requirements Are To Discover Risks In Various Avenues Of Islamic Financial Management Self Estimation Risks (Skill, Ethics, PR, Commitment, Smartness, Wisdom, Mutual Respect & Tolerance)  Misconception & Unnecessary Debate  Regulatory Risk  Regulatory vs Supervisory Authority  Environmental Risks  Political Risks  Irrational Decision Making  Deposit Risks  Investment Risks  Selection of Instruments Risks

5 Continue Profit Sharing Investment Account Management Risks Operational Risks Selection Risks in General Accounting Risks Lack of Disclosure Market Risks Natural Risks Lack of Customers’ Commitment & Cooperation Credit Risks Careless Execution Unhealthy Competition Poor Review Exercise

6 Mechanisms for Minimizing Financial Risks  Regulations & Policy Review Process  Supervisory Review Process  Management Review Process  Rationalism Dominate Applications  Market Discipline  Product Innovation  Adaptation of Suitable Instruments  Staff & Management Enrichment Programs  Public Awareness Programs  R & D  Accurate Guidance  Dynamism with Wisdom, Smartness, Tolerance & Mutual Respect

7 Minimum Capital Requirements For Islamic Financing Assets  MURĀBAHAH AND MURĀBAHAH FOR THE PURCHASE ORDERER Credit Risk Market Risk Summary of Capital Requirement at Various Stages of the Contract  SALAM Credit Risk Market Risk Summary of Capital Requirement at Various Stages of the Contract\  ISTISNĀ Credit Risk Market Risk Summary of Capital Requirement at Various Stages of the Contract  IJĀRAH AND IJĀRAH MUNTAHIA BITTAMLEEK Credit Risk Market Risk Summary of Capital Requirement at Various Stages of the Contract  MUSHĀRAKAH AND DIMINISHING MUSHĀRAKAH Equity Position Risk Summary of Capital Requirements for Mushārakah Categories

8 Continue……….  MUDĀRABAH Equity Position Risk Summary of Capital Requirements for Mu ḍ ārabah Categories  SUKŪK Salam sukūk Istisnā` sukūk Ijārah sukūk Mushārakah sukūk Mu ḍ ārabah (Muqara ḍ ah) sukūk Exclusion Summary of Capital Requirements for Sukūk

9 Unjustifiable Pricing  Discouragement of Public  Weakening the Back Bone & the Growth of the Industry  Leading to Socio-Economic Damages Consequential Impact for Failure to Manage Financial Risks

10 THANK YOU WASSALAM


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