Internal Capital Adequacy Assessment in IFIs

Abstract

Having established in previous chapters of this book the accounting and reporting requirements for Islamic financial institutions (IFIs), this Chapter analyses how the outcome of our earlier analysis and discussion is incorporated by IFIs in preparing key documents required by financial regulatory authorities. Those documents are in relation to IFIs’ Internal Capital Adequacy Assessment (ICAAP) that set out how an IFI operates within a regulatory framework, ensures its capital requirements are adequate for its operational model and how it manages its associated risks. The analysis provided here outlines a framework that would serve as a guide for the Islamic finance industry. This framework will help all Islamic financial institutions tailor their regulatory capital requirements considerations to reflect their Shariah governance and requirements while still complying with such banking regulations.