An off-balance sheet (Off-BS) account is an asset or a liability that is not legally required to be presented as such in the balance sheet of a bank or financial institution.
Off-balance sheet sources of funds (funds mobilization) include restricted mudaraba (mudarabah/ mudharabah), restricted investment accounts, and wakala (wakalah), whilst off-balance sheet uses of funds (earning generating assets) are investment funds and portfolios.
Banks and financial firms usually use off-balance sheet accounts to lower overall risk (control risks associated with RIAs), reserve requirements (reserve ratios, capital-to-assets ratios, etc), improve return on assets, enhance liquidity position, among others.
