Capital Structure and Financial Risks in Non-Conventional Banking System

Abstract

We discuss issues of capital structure and enforcement in Islamic finance only to the extent that Islamic financial institutions differ from their conventional counterparts. Substantive differences do in fact exist. This paper presents the capital adequacy framework for Islamic banks compared to the setting up of the Basel II capital adequacy framework. We discusses of the risk profile of an Islamic banking and on the relationship between risk management and capital structure, it overviews specific risk categories for Islamic banks as an initial step in risk management, and highlight the differences and similarities in importance of these causes for Islamic banks. We present appropriate risk weights to unrestricted investments in order to defining their own capital requirements with regard to loss tolerance.