A capital tier that constitutes the first line of defense or buffer against losses to an Islamic bank’s capital that arise from risk exposures in the market where a bank operates. Tier-1 capital consists of core tier-1 and other tier-1. Core tier-1 capital is common equity (common share), while other tier-1 capital is made up of preferred stock and hybrid securities (in conventional finance).
In Islamic finance, other tier-1 capital includes preferred stock (in specific jurisdictions where it is considered permissible by shari’ah) and tier-1 sukuk (e.g., musharakah sukuk).
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