a.IBs must ensure that it has a well-diversified funding base, which must be commensurate with the nature and size of its business, products offered and regulatory market environment. It must maintain strong relationships with various fund providers – retail, corporate or interbank – to ensure proper diversification of its funding base. It must also be able to identify major factors that influence the decision-making process of various fund providers and take measures to control and mitigate those factors, as well as to maintain relationships with its core investment funds and deposit base. The diversification of funding sources must span a range of maturities, including the short, medium and longer term, so as to provide a suitable match with maturities in its assets portfolio.
b.As a part of its diversification strategy, an IB must manage and limit its funding concentrations. IB must limit funding concentrations by name–type, product, geographical location, sector, currency and nature of the provider.
c.IBs that rely on the funding from wholesale investors as a major funding source must assess the likelihood of being able to continue to rely on keeping funds with such investors when under duress and must incorporate in its analysis that funding from wholesale investors might dry up in stressed conditions.
d.IBs may use securitisation of financing and investment assets for managing liquidity, freeing up assets from the balance sheet and raising new funds, in addition to reducing their risk exposures.
e.IBs must also take into consideration the features and risks of various sources of funds and mechanisms e.g. retail and corporate fund providers on the basis of current accounts, investment accounts, other type of accounts, and the Islamic interbank market. being used.
f.Preserving market access is an important element of achieving diversification in the funding base of IB. Access to various funding markets ensures that the IB is able to raise new funds and sell its Shari’ah-compliant assets and Sukuk with ease and without a major price distortion. IB must also be able to spot alternative funding sources in order to meet any situation of market duress and these must form part of its CFP. Possible sources of such funding in the IB may be an expansion of its deposits and investment accounts, securitisation, the sale of unencumbered Shari`ah-compliant assets, the drawing down of committed lines of financing, accessing the local Islamic interbank market, secured financing through Shari’ah-compliant alternative structures, etc.