---
title: "What is Capital adequacy (Islamic banks)? | IslamicOpenFinance™"
description: "Holding enough capital against risks; for Islamic banks, the IFSB adapts the Basel rules to each Shariah contract."
url: https://islamicopenfinance.com/glossary/capital-adequacy/
lang: en-GB
source: "IslamicOpenFinance"
---

[Glossary](https://islamicopenfinance.com/glossary/) / [Prudential regulation](https://islamicopenfinance.com/glossary/#prudential)

Prudential regulation

# Capital adequacy (Islamic banks)

Holding enough capital against risks; for Islamic banks, the IFSB adapts the Basel rules to each Shariah contract.

Capital adequacy is the requirement that a bank hold capital resources sufficient for the risks it takes. For institutions offering Islamic financial services, IFSB-23 adapts the Basel framework by setting the capital treatment contract by contract, since murabaha, ijarah, salam, istisna, musharakah and mudarabah each carry different combinations of credit, market and equity risk. It also addresses risks specific to Islamic banks, such as those arising from investment accounts.

## Sources

- [IFSB-23 Revised Capital Adequacy Standard (Banking Segment), 2021](https://www.ifsb.org/wp-content/uploads/2023/10/IFSB-23_En.pdf)

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

[**Alpha factor** In IFSB capital rules, the share of risk on investment-account-funded assets that is treated as falling on shareholders.](https://islamicopenfinance.com/glossary/alpha-factor/) [**Displaced commercial risk** Pressure on an Islamic bank to give up part of its own profit so investment account holders earn a competitive return.](https://islamicopenfinance.com/glossary/displaced-commercial-risk/) [**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.](https://islamicopenfinance.com/glossary/profit-sharing-investment-account/) [**Operational risk** The risk of loss from failed processes, systems, people or external events; for Islamic institutions it includes Shariah non-compliance risk.](https://islamicopenfinance.com/glossary/operational-risk/)

**Prudential regulation**

1. [Displaced commercial risk](https://islamicopenfinance.com/glossary/displaced-commercial-risk/)
2. [Profit equalisation reserve](https://islamicopenfinance.com/glossary/profit-equalisation-reserve/)
3. [Investment risk reserve](https://islamicopenfinance.com/glossary/investment-risk-reserve/)
4. [Alpha factor](https://islamicopenfinance.com/glossary/alpha-factor/)
5. [Islamic deposit insurance](https://islamicopenfinance.com/glossary/islamic-deposit-insurance/)
6. [Rate of return risk](https://islamicopenfinance.com/glossary/rate-of-return-risk/)
7. [Fiduciary risk](https://islamicopenfinance.com/glossary/fiduciary-risk/)
8. [Institutions offering Islamic financial services (IIFS)](https://islamicopenfinance.com/glossary/institutions-offering-islamic-financial-services/)

[All 221 terms](https://islamicopenfinance.com/glossary/)