---
title: "What is Displaced commercial risk? | IslamicOpenFinance™"
description: "Pressure on an Islamic bank to give up part of its own profit so investment account holders earn a competitive return."
url: https://islamicopenfinance.com/glossary/displaced-commercial-risk/
lang: en-GB
source: "IslamicOpenFinance"
---

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

Prudential regulation

# Displaced commercial risk

Pressure on an Islamic bank to give up part of its own profit so investment account holders earn a competitive return.

Displaced commercial risk arises when an Islamic bank acting as mudarib gives up part of its own profit to smooth the returns paid to investment account holders, as the IADI-IFSB core principles describe it. Banks do so to keep returns in line with competitors and to avoid withdrawals, even though the contract does not require it. The practice shifts risk from account holders to shareholders, and IFSB-23 reflects it in capital requirements.

## Sources

- [IADI-IFSB Core Principles for Effective Islamic Deposit Insurance Systems, 2021: Definitions of key terms, Displaced commercial risk](https://www.ifsb.org/wp-content/uploads/2023/10/IADI-IFSB_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/) [**Profit equalisation reserve** An amount set aside from mudarabah income to maintain a level of return for investment account holders and the bank over time.](https://islamicopenfinance.com/glossary/profit-equalisation-reserve/) [**Rate of return risk** The risk that changes in market rates affect an Islamic bank's net income; the analogue of interest rate risk in the banking book.](https://islamicopenfinance.com/glossary/rate-of-return-risk/) [**Investment account holder** A customer who places funds in an investment account and shares in its returns and risks, rather than holding a deposit claim.](https://islamicopenfinance.com/glossary/investment-account-holder/)

**Prudential regulation**

1. [Capital adequacy (Islamic banks)](https://islamicopenfinance.com/glossary/capital-adequacy/)
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/)