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Mr. Juan Sole and Andreas Jobst

-contingent payments based on direct participation in asset performance. While the reliance on a real or nonmonetary asset, or “asset-backing,” might imply risk-sharing between contractual parties as an end result, shari’ah law discourages risk-taking per se regardless of economic significance. While shari’ah does not object to payment for the use of an asset, the manner in which profits are generated is pre-defined and immutable while profits themselves are not guaranteed ex ante but accrue only if the investment itself yields income. Payment and delivery obligations

Andreas Jobst and Mr. Juan Sole

); Project and counterparty risks stemming from partnership-like financing; Rate of return risk from pricing frictions if Islamic banks need to adjust profit rates of investment accounts (outside actual underlying asset performance) to compete with conventional banks in response to changes in monetary policy; and Operational risk from the failure to comply with Islamic finance principles. The distinct risk profile of Islamic banks underscores the need for a coherent and consistent approach to the design and implementation of solvency stress testing. This paper

Mr. Juan Sole and Andreas Jobst