Versions

 

RM-3.1.1

This Chapter sets out the principles and rules pertaining to the management of risks inherent in the holding of equity instruments for investment purposes. In particular, for Islamic bank licensees, the relevant instruments are typically those based on the Mudarabah and Musharakah contracts. This Chapter focuses on such instruments. The risks entailed by holding equity instruments for trading or liquidity purposes are dealt with under market risk in Chapter RM-4. While investments made via Mudarabah and Musharakah instruments may contribute substantially to Islamic bank licensees' earnings, they entail significant market, liquidity, credit8 and other risks, potentially giving rise to volatility in earnings and capital.


8 One example of credit risk exposure arises from the Mudarib's obligation to pay the agreed share of profit to the Islamic bank licensee as Rabb al-mal when such payment falls due. Failure to meet this obligation constitutes a case of misconduct and negligence in the part of the Mudarib.

January 2013