Tier 2 Capital Instruments under Basel III: A Sharīʿah Viewpoint

Madaa Munjid Mustafa, Beebee Salma Sairally, Marjan Muhammad
  • Arab Law Quarterly, May 2018, Brill
  • DOI: 10.1163/15730255-12320023

A Shariah perspective on Tier 2 Capital Instruments as required by Basel III

What is it about?

This paper compares the regulatory requirements for issuing Tier-2 (T2) capital instruments by Islamic banking institutions as has been defined by Basel III, Bank Negara Malaysia (BNM) and IFSB standards (IFSB-15). It examines the Shariah issues, especially related to subordination, arising in exchange-based and equity-based contracts when used for structuring T2 capital instruments.

Why is it important?

The Basel Committee on Banking Supervision has set new capital and liquidity standards for banking institutions. Islamic banks are also affected by such standards. As Islamic banks have to also comply by Islamic law (Shariah), there is a need to examine whether the regulatory capital requirements as defined by Basel III raises any Shariah issues. This paper particularly examines the case of T2 capital instruments in the light of Islamic law.

Perspectives

Dr Salma Beebee Sairally
International Shariah Research Academy for Islamic Finance (ISRA)

Writing this article was a great pleasure as it has co-authors with whom I have had long standing collaborations. The paper was a sequel of another article which we wrote on T1 capital instruments from the perspective of Basel III and Shariah. Both articles look into key issues that may arise when Islamic banks try to comply with Basel III requirements when issuing regulatory capital instruments.

Read Publication

http://dx.doi.org/10.1163/15730255-12320023

The following have contributed to this page: Dr Salma Beebee Sairally and madaa mustafa