IBANK 4.6.8 Eligible Collateral for Islamic Banking Business Firms

(1) The following are eligible collateral if they satisfy the criteria in subrule (2):
(a) gold bullion;
(b) cash;

Note For what is included in cash collateral, see rule 4.6.10(1).
(c) hamish jiddiyah or refundable security deposit taken by the firm against damages if:
(i) a purchase orderer in an MPO contract defaults on its obligation to purchase the asset; or
(ii) a lease orderer in an ijarah contract defaults on its obligation to lease the asset;
(d) urbun or earnest money held by a firm as collateral to guarantee contract performance;
(e) sukuk that are assigned, by an ECRA, a rating of:
(i) for sovereign or non-commercial public sector enterprise securities that are eligible for zero per cent risk-weight — at least BB-;
(ii) for short-term debt securities — at least A-3/P-3; or
(iii) for any other securities — at least BBB-;
(f) subject to subrule (3), sukuk that have not been assigned a rating by an ECRA, if:
(i) the securities are issued by an Islamic banking business firm (or by a conventional bank that is outside the QFC and that has an Islamic window or subsidiary operation) as senior debt and are listed on a recognised exchange;
(ii) all rated issues of the same seniority issued by that firm or bank have a credit rating of at least BBB- (for long-term debt instruments) or A-3/P-3 (for short-term debt instruments); and
(iii) the firm or bank and the holder of the collateral have no information suggesting that the securities should have a rating below BBB- or A-3/P-3;
(g) Shari'a-compliant equities (including convertible sukuk) that are included in a main index;
(h) units in Islamic collective investment schemes;
(i) tracker funds, mutual funds and undertakings for collective investments in transferable securities (UCITS) if:
(i) a price for the units is publicly quoted daily; and
(ii) the funds or UCITS are limited to investing in instruments listed in this subrule;
(j) Shari'a-compliant equities (including convertible sukuk) that are not included in a main index but are listed on a recognised exchange, and funds and UCITS described in paragraph (i) that include such equities.
(2) For collateral to be eligible collateral, it must be lodged for at least the life of the exposure, and must be marked-to-market at least once a month. The release of collateral must be conditional on the repayment of the exposure, but collateral may be reduced in proportion to the amount of any reduction in the exposure.
(3) Collateral in the form of securities issued by the counterparty or a person connected to the counterparty is not eligible collateral.
(4) Takaful contracts, unilateral promises to buy from counterparties (such as put options), and forward sales contracts or agreements (such as salam and istisna contracts) are not eligible collateral.
Derived from QFCRA RM/2015-2 (as from 1st January 2016).