The Islamic Research and Training Institute (IRTI) and the College of Banking and Financial Studies (CBFS), an associate of the Central Bank of Oman, have organized an international workshop to address the challenges of capital regulations for Islamic financial institutions.
Under the theme "Determination of Alpha in the Capital Adequacy Ratio for Institutions Offering Islamic Financial Services", the workshop was held from 14-15 November 2018 in Muscat, Sultanate of Oman.
Islamic finance has grown remarkably in the past three decades, yet the industry is still grappling with challenges related to the regulatory environment where Islamic banks are subjected to the same regulations as conventional banks, despite the issuance of separate regulatory standards for Islamic financial institutions by the Islamic Financial Services Board (IFSB).
The workshop was aimed to provide better insights on the Islamic financial standard for capital regulations, and to address the challenges being faced by financial regulatory authorities in adopting the IFSB regulatory standards.
In search of solutions to these challenges, the workshop discussed the different techniques regulators employ to adopt the IFSB standard and the need for a uniform methodology to be used by regulators, given the significant impact this could have on the calculation of capital adequacy ratio and financial stability.
Key outcomes from the workshop include determination of the various methodologies of estimating 'Alpha', a measure related to capital adequacy of profit-sharing investment accounts (PSIA) of Islamic banks. The workshop also stressed the importance of updating IFSB standard 15 in the light of discussions in the workshop, and the importance of modernizing the calculation of 'Alpha' by using coherent risk measures instead of the currently used standard deviation.
The workshop is expected to herald a series of IRTI events tackling issues facing regulatory and supervision authorities in the Islamic finance industry.