Basel III and Islamic finance: friend or foe?

High capital levels and a prohibition on more exotic forms of funding should leave Islamic banks well placed under Basel III. But a lack of high quality sharia-compliant instruments leaves the sector facing issues over liquidity requirements

Basel III has prompted a large amount of discussion among the Islamic financial sector. At first glance, the new regime should be positive: Islamic banks should easily already clear most of the new requirements for capital and adequacy ratios without needing to raise substantial amounts of new capital - unlike their conventional banking peers. This should effectively level the playing field between the two schools of finance.

For example, Basel III is targeting a minimum core Tier I capital level