6.43. Treatment of mudarabah and related contracts

This rule applies to risk-weighting for an exposure arising from a mudarabah contract, except if the AFSA examines the exposure and determines it to be an equity investment. If the AFSA determines that the exposure is an equity investment, the risk-weights set out in rule 6.41 for musharakah apply.

Table 6.13A Credit risk-weights for mudarabah investments (other than project finance)

Enterprise or asset	Credit Risk-weight
private commercial enterprise to undertake trading activities in foreign exchange, shares or commodities	not applicable
private commercial enterprise to undertake business venture other than trading activities in foreign exchange, shares or commodities	before maturity: 400% of the contributed amount less any specific provisions (or 300% if the funds may be withdrawn by an Islamic Bank at short notice) on maturity: after the mudarib has agreed to pay back an Islamic Bank’s initial investment, based on the mudarib’s type and rating under Rule 6.24
placement in the interbank market	based on the customer’s type and rating under Rule 6.24

Table 6.13B Credit risk-weights for mudarabah investments in project finanance

Stage of contract	Credit risk-weight
before completion: unbilled work-in-process inventory	400% on unbilled inventory less any amount held in the repayment account
on completion: after certification from ultimate customer, where the amount is receivable by an Islamic Bank from the mudarib (for progress payment to the mudarib from the ultimate customer)	based on the ultimate customer’s type and rating under Rule 6.24 or based on the mudarib’s type and rating under Rule 6.24:  (a)    for any amount already paid by the ultimate customer to the mudarib; or  (b)    if the mudarib undertakes to bear the default risk of the ultimate customer as part of the mudarabah contract