RM-6.2.2

A consequence of rate of return risk may be displaced commercial risk. Islamic bank licensees may be under market pressure to pay a return that exceeds the rate that has been earned on assets financed by IAHs when the return on assets is under-performing as compared with competitors' rates. Islamic bank licensees may decide to waive their rights to part or their entire Mudarib share of profits in order to satisfy and retain their fund providers and dissuade them from withdrawing their funds. Displaced commercial risk derives from competitive pressures on Islamic bank licensees to attract and retain investors (fund providers). The decision of Islamic bank licensees to waive their rights to part or all of their Mudarib share in profits in favour of IAHs is a commercial decision, the basis for which needs to be subject to clear and well defined policies approved by the Islamic bank licensee's BOD.

Amended: January 2020
January 2013