Tier 2 capital instruments under Basel III: a Shari'ah viewpoint
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Basel III has redefined the criteria for regulatory capital instruments. Accordingly, Islamic banking institutions (IBIs) have to consider the issuance of instruments that would meet both the objectives of Basel III and Shari'ah requirements. This research particularly aims to compare the regulatory requirements for issuing Tier-2 (T2) capital instruments as defined by Basel III, Bank Negara Malaysia (BNM) and IFSB-15. In this regard, the research examines the Shari'ah issues related to subordination and conversion arising in exchange-based contracts (such as murabahah and ijarah sukuk) and equity-based contracts (such as mudarabah and wakalah sukuk). The study relies on library research to collect secondary data in the form of classical works of Islamic jurisprudence, analyses such work and links it with the present day regulatory requirements. The study finds that there are Shari'ah concerns over the use of exchange-based contracts. However, the use of convertible mudarabah and wakalah sukuk could be justified.
Basel III , Capital instruments , Conversion , Subordination , Tier 2 (T2)
Mustafa, Madaa Munjid and Sairally, Beebee Salma and Muhammad, Marjan. (2018). Tier 2 capital instruments under Basel III: a Shari'ah viewpoint. Arab Law Quarterly, 32 (3), pp. 205-241.