Additional Tier 1 Capital Instruments under Basel III: A Shariʿah Viewpoint


This research aims to compare the regulatory capital instruments for Islamic banking institutions (IBIs)—in particular the qualifying Additional Tier 1 (AT1) capital instruments—as defined by Basel III, Bank Negara Malaysia (BNM) and IFSB-15 (issued by the Islamic Financial Services Board). Principally, the research examines the Shariʿah issues, especially related to subordination, arising in equity-based contracts when used for structuring AT1 capital instruments. In particular, it examines the mudarabah sukuk issued by the Abu Dhabi Islamic Bank (ADIB) in 2012. The study finds that the most appropriate Shariʿah contract that would be suitable for structuring AT1 capital instruments would be musharakah. The present study is considered an original attempt in examining an under-researched topic relating to Basel III and its Shari'ah perspective. The study will be an important reference point to Islamic banks when structuring AT1 capital instruments.

Keywords: Islamic Financial Services Board (ifsb); Basel iii; Shariʿah; subordination; capital instrument; Additional Tier 1 (AT1); Bank Negara Malaysia (bnm); musharakah


Arab Law Quarterly 30 (2016) 138-162 (Close Access)


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