Alpha factor
In IFSB capital rules, the share of risk on investment-account-funded assets that is treated as falling on shareholders.
Alpha is a parameter in the IFSB's capital adequacy formula that measures the proportion of credit and market risk on assets financed by investment account holders' funds that is effectively transferred to shareholders, which is displaced commercial risk. Its value is set by the supervisory authority and ranges from zero to one. A higher alpha means more of those assets count in the bank's risk-weighted assets.
Sources
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
Displaced commercial riskPressure on an Islamic bank to give up part of its own profit so investment account holders earn a competitive return.Capital adequacy (Islamic banks)Holding enough capital against risks; for Islamic banks, the IFSB adapts the Basel rules to each Shariah contract.Profit-sharing investment account (PSIA)An account whose funds the bank invests, usually as mudarib, with returns based on actual results rather than a promised rate.