CA-3.5.17
In the case of an asset acquired and held for the purpose of either operating Ijara or IMB, the capital charge to cater for market (price) risk in respect of the leased asset from its acquisition date until its disposal can be categorised as follows:
(a) Non-binding PL
The asset for leasing will be treated as inventory of theIslamic bank licensee and, using the simplified approach, the capital charge applicable to such a market risk exposure is 15% of the amount of the asset's market value); and
The asset for leasing will be treated as inventory of the
(b) Binding PL
In a binding PL, anIslamic bank licensee is exposed to default on the lease orderer's obligation to lease the asset in its possession. In the event of the lease orderer defaulting on its PL, the Islamic bank licensee will either lease or dispose of the asset to a third party. The Islamic bank licensee will have recourse to any HJ paid by the customer 16, and (i) may have a right to recoup from the customer any loss on leasing or disposing of the asset after taking account of the HJ, or (ii) may have no such right, depending on the legal situation. In both cases, this risk is mitigated by the asset in possession as well as any HJ paid by the lease orderer.
In a binding PL, an
16 In the case of HJ, the amount can only be deducted for damages — that is, the difference between the asset acquisition cost and the total of lease rentals (when the asset is leased to a third party) or selling price (when the asset is sold to a third party), whichever is applicable.
January 2015