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  • Equity Position Risk — Musharakah

    • CA-3.6.9

      For Musharakah, the equity exposure is measured based on the nature of the underlying investments as follows:

      (a) For investments held in the trading book, exposure is equal to the fair value; and
      (b) For investments held to maturity, exposure is equal to the carrying value, which may be the fair value or the historical cost less any provisions for impairment.
      January 2015

    • CA-3.6.10

      For private commercial enterprises undertaking trading activities in foreign exchange, shares or commodities, the Musharakah exposures, net of provisions is measured as follows:

      (a) The RW is based on the applicable underlying assets as set out in the market risk section in Chapter CA-5.
      The investment in foreign exchange and trading in gold/silver is measured according to the treatment as set out in Section CA-5.5, which requires 8% capital charge on the greater of either net long or net short positions in foreign exchange and 8% capital charge on the net long position of gold/silver;
      (b) The RW of a Musharakah that invests in quoted shares is measured according to the equity position risk approach, where positions in assets tradable in markets qualify for treatment as equity position risk in the trading book, which incur a total capital charge of 16% as set out in Section CA-5.3; and
      (c) Investment in commodities is measured according to either the maturity ladder approach or the simplified approach as set out in Section CA-5.6.
      January 2015

    • CA-3.6.11

      For private commercial enterprise undertaking a business venture other than in Paragraph CA-3.6.12), there are two possible methods used to calculate the equity exposures:

      (a) Simple risk-weight method: The RW must be applied to the exposures (net of specific provisions) based on equity exposures in the banking book. The RW under the simple RW method for equity position risk in respect of an equity exposure in a business venture must entail a 400% RW for shares that are not publicly traded less any specific provisions for impairment. If there is a third-party guarantee to make good impairment losses, the RW of the guarantor must be substituted for that of the assets for the amount of any such guarantee; or
      (b) Supervisory slotting method: An Islamic bank licensee is required to map its RW into four supervisory categories as described in Appendix CA-5 (specialised financing) where the RW of each category is as follows:

      Supervisory Categories Strong Good Satisfactory Weak
      Risk weights 90% 110% 135% 270%


      The above RWs under the slotting method for specialised financing include an additional fixed factor of 20% RW to cater for potential decline in the Musharakah's net asset value.

      For further explanation, also see Paragraphs CA-4.8.7–4.8.11.
      January 2015