IBANK 4.5.11 Treatment of Wakalah

An Islamic banking business firm is exposed to credit risk if the firm enters into a financing agreement based on wakalah.

Table 4.5.11A Credit risk-weights for wakalah investments (other than project finance)

enterprise or asset credit risk-weight
private commercial enterprise to undertake trading activities in foreign exchange, shares or commodities n/a
private commercial enterprise to undertake a business venture other than trading in foreign exchange, shares or commodities 400% of the contributed amount less any specific provisions (or 300% if the funds may be withdrawn by the firm within 5 business days after giving notice of withdrawal)
placement in the interbank market based on the customer's type and rating under Part 4.4

Table 4.5.11B Credit risk-weights for wakalah investments in project finance

stage of contract credit risk-weight
before completion: unbilled work-in-process inventory 400% on unbilled inventory
on completion: after certification from ultimate counterparty, where the amount is receivable by the firm from the wakeel (for progress payment to the wakeel from the ultimate counterparty) based on the ultimate counterparty's type and rating under Part 4.4

or

based on the wakeel's type and rating under Part 4.4:
(a) for any amount already paid by the ultimate counterparty to the wakeel; or
(b) if the wakeel undertakes to bear the default risk of the ultimate counterparty as part of the wakalah contract

Derived from QFCRA RM/2015-2 (as from 1st January 2016).