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AAOIFI CPAAGE practice questions

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Question 1Shari'ah Standards

Under AAOIFI Shari'ah standards, what is the essential nature of a murabahah contract as originally conceived?

  1. A partnership in which profits are shared proportionally
  2. A sale of goods at cost plus an agreed profit margin Correct answer.
  3. A loan repayable with a fixed interest charge
  4. A lease of an asset for a rental stream

Explanation

Murabahah is a sale contract in which the seller discloses the cost of the asset and adds a known profit margin agreed with the buyer. It is a trading transaction, not a financing loan. The obligation arises from the sale price, not from interest.

Question 2Shari'ah Standards

In a mudarabah arrangement, who bears the financial loss when the venture fails without negligence by the mudarib?

  1. Both parties share the loss equally
  2. The rabb-ul-mal alone, in monetary terms Correct answer.
  3. The mudarib's labour is valued and offset against the loss
  4. The mudarib alone, in monetary terms

Explanation

The classical rule is that the provider of capital bears monetary loss while the mudarib loses the effort invested. The mudarib is liable only for loss caused by misconduct or breach. This allocation is the defining risk feature of mudarabah.

Question 3Shari'ah Standards

Which feature distinguishes a musharakah mutanaqisah from an ordinary musharakah?

  1. The capital provider is guaranteed a fixed return
  2. One partner gradually acquires the other's share until ownership is complete Correct answer.
  3. The contract must be terminated before any profit is distributed
  4. Profits are always divided according to capital contribution only

Explanation

In diminishing musharakah the customer progressively purchases the institution's equity share through separate sale or gift undertakings. Ownership thereby shifts until the customer holds the whole asset. Ordinary musharakah does not include this planned equity reduction.

Question 4Shari'ah Standards

In an ijarah contract, what is transferred to the lessee?

  1. The capital of the lessor as a trust
  2. Ownership of the leased asset at the end of the term
  3. The usufruct of a specified asset for a stated period Correct answer.
  4. A share of the asset's resale profit

Explanation

Ijarah is the sale of usufruct for a known rental over a known period, while ownership of the asset stays with the lessor. The lessor retains the risks tied to ownership. Transfer of ownership would require a separate sale or gift.

Question 5Shari'ah Standards

Which contract is the appropriate Shari'ah-compliant structure for a manufacturing order where the price and specifications are agreed in advance?

  1. Kafalah
  2. Wakalah
  3. Sarf
  4. Istisna Correct answer.

Explanation

Istisna is a sale of a specified item to be manufactured or constructed according to agreed specifications, with price and delivery terms set in advance. It suits manufacturing and construction finance. The other contracts serve currency exchange, guarantee, and agency functions.

Question 6Shari'ah Standards

What is the essential subject matter of a salam contract?

  1. A lease of agricultural land for a season
  2. A guarantee of a third party's debt
  3. An immediate exchange of two different currencies
  4. A deferred delivery of a precisely specified fungible commodity against immediate price Correct answer.

Explanation

Salam is a forward sale in which the full price is paid at inception for a precisely defined fungible good to be delivered later. The commodity must be measurable and specified to avoid uncertainty. Immediate price payment is central to its validity.

Question 7Shari'ah Standards

In a wakalah contract, what is the role of the wakeel?

  1. An agent acting on behalf of the principal within the agreed scope Correct answer.
  2. A guarantor who becomes liable for the principal's debt
  3. A seller who discloses cost and adds a margin
  4. A capital provider entitled to a share of profit

Explanation

Wakalah is an agency contract in which the wakeel performs specified acts for the muwakkil within the mandate granted. The agent acts on the principal's behalf, generally without bearing the principal's commercial risk. Guarantee and capital provision belong to other contracts.

Question 8Shari'ah Standards

What distinguishes a rahn (pledge) arrangement from an outright sale of the pledged asset?

  1. The creditor immediately becomes the owner of the pledged asset
  2. The pledgor loses all rights to redeem the asset
  3. The pledgor retains ownership while the creditor holds the asset as security Correct answer.
  4. The asset is transferred to a third party as a gift

Explanation

In rahn the asset is held as security for a debt while ownership remains with the pledgor, who may redeem it on settlement. The creditor may not treat the pledge as a purchase or appropriate it for the debt. Sale would require a separate transaction.

Question 9Shari'ah Standards

A bank buys an asset for 100,000 and sells it to a customer for 110,000 payable in installments over two years. The customer later asks to reduce the price for early settlement. Under AAOIFI standards, how should the bank treat this?

  1. It may grant a discretionary rebate (ibra) without making it a contractual condition Correct answer.
  2. It must reduce the price automatically as a contractual right of the customer
  3. It may charge an additional penalty equal to the discount forgone
  4. It must convert the remaining balance into a fresh interest-bearing loan

Explanation

A rebate on early settlement may be granted voluntarily as ibra, but making it a binding contractual entitlement links the outcome to time and resembles riba. The bank retains discretion. Any arrangement must avoid pre-agreed time-based price adjustments.

Question 10Shari'ah Standards

An Islamic bank holds a murabahah receivable and wishes to raise liquidity by selling the receivable to a third party at a discount. How does this fare under AAOIFI standards?

  1. It is permissible if the receivable is denominated in gold
  2. It is impermissible because it amounts to selling a debt for less than its face value Correct answer.
  3. It is permissible provided the discount is disclosed to the customer
  4. It is permissible only if the buyer is another Islamic bank

Explanation

Selling a monetary debt for a lesser amount is bay' al-dayn at a discount, which amounts to riba and is prohibited. Receivables may not be traded for cash below face value. Liquidity must be obtained through Shari'ah-compliant alternatives.

Question 11Shari'ah Standards

In a salam contract, the buyer pays the full price upfront but the seller fails to deliver the specified commodity on the due date. What is the buyer's Shari'ah-compliant option?

  1. Convert the contract into an interest-bearing loan
  2. Charge compound interest for the delay period
  3. Sell the undelivered commodity back to the seller at a higher price
  4. Cancel the contract and recover the paid price, or wait for delivery Correct answer.

Explanation

When the seller defaults on salam delivery, the buyer may either wait or cancel and recover the price paid. The buyer may not impose interest for delay. Any substitute arrangement must itself be Shari'ah-compliant.

Question 12Shari'ah Standards

A lessor in an ijarah contract wishes to shift the cost of major structural repairs and insurance to the lessee. How does AAOIFI treat such stipulations?

  1. Such costs may be shifted freely because the parties are free to contract
  2. Major ownership-related costs remain with the lessor and cannot be shifted to the lessee Correct answer.
  3. Such costs may be shifted only if the lease term exceeds one year
  4. Such costs must be shared equally between the parties

Explanation

Costs inherent in ownership, such as major structural maintenance and insurance of the asset, rest with the lessor. Shifting them to the lessee undermines the nature of ijarah as a sale of usufruct. Operating costs of normal use may be borne by the lessee.

Question 13Shari'ah Standards

In a diminishing musharakah home-financing structure, the customer defaults on instalments. What is the appropriate Shari'ah-compliant response?

  1. The institution may seize the customer's other assets without court process
  2. The institution may add a late fee to its profit as compensation
  3. The institution may charge a charitable penalty (gharamah) that does not increase its own income Correct answer.
  4. The institution may accelerate the full price with an added time-based premium

Explanation

Late payment in partnership-based finance may be addressed by a penalty directed to charity, not to the institution's income. Adding time-based compensation would resemble riba. Enforcement of rights must follow lawful process.

Question 14Shari'ah Standards

A customer wants a bank to finance the purchase of a car and later sell it back to the bank at a higher price so the customer can obtain cash. How should the bank respond under AAOIFI standards?

  1. Accept, provided the two sales are documented separately
  2. Accept, provided the customer pays a service fee
  3. Accept, because murabahah is a valid sale in form
  4. Decline, because a buy-back arrangement used to generate cash is an impermissible hiyal structure Correct answer.

Explanation

Using murabahah with a prearranged buy-back to obtain cash is a device (hiyal) that converts the sale into a financing transaction resembling a loan with interest. The arrangement is prohibited regardless of documentation. Genuine trade risk must be present.

Question 15Shari'ah Standards

In istisna, the buyer makes an advance payment to the manufacturer. Under AAOIFI standards, how is this advance treated?

  1. It is prohibited because advance payment is only allowed in salam
  2. It must be returned if the manufacturer delays delivery
  3. It converts the contract into a loan
  4. It is permissible as part of the price and may be set off against the final price Correct answer.

Explanation

Istisna permits advance, instalment, or deferred payment of the price, including advances that are later set off. The flexibility of istisna distinguishes it from salam, which requires full immediate payment. Delay does not automatically void the advance.

Question 16Shari'ah Standards

A bank acts as mudarib for depositors and invests their funds in a trade that yields profit. How is the profit distributed?

  1. Entirely to the depositors as a fixed return
  2. Entirely to the bank as a management fee
  3. Equally between bank and depositors regardless of agreement
  4. According to the agreed profit-sharing ratio, with losses borne by the depositors absent misconduct Correct answer.

Explanation

Profit in mudarabah is shared according to a pre-agreed ratio, while monetary loss falls on the capital providers unless the mudarib was negligent. A fixed return to depositors would be riba. The bank's reward is its share, not a guaranteed fee.

Question 17Shari'ah Standards

In a wakalah bil-istithmar (investment agency), how does the agent's fee typically interact with investment results?

  1. The agent's fee increases automatically with any loss
  2. The fee is agreed in advance and the agent generally does not bear investment losses absent misconduct Correct answer.
  3. The agent guarantees the capital and any shortfall
  4. The agent receives a share of profit only and never a fee

Explanation

In wakalah bil-istithmar the agent receives a pre-agreed fee or a performance-linked incentive, but does not guarantee capital. Losses fall on the principal unless the agent breached its duties. Guaranteeing capital would conflict with the agency nature.

Question 18Shari'ah Standards

Two parties exchange US dollars for euros. Under AAOIFI sarf rules, what is required for validity?

  1. Deferred delivery of one currency to reduce risk
  2. Simultaneous hand-to-hand settlement of both currencies Correct answer.
  3. Equal quantities of each currency by weight
  4. A guarantee from a third party

Explanation

Sarf requires simultaneous settlement (taqabud) of both counter-values before the parties separate. Deferring either side is prohibited. Equality of quantity applies to same-currency exchanges, not to different currencies.

Question 19Shari'ah Standards

In a kafalah contract, what does the guarantor (kafeel) undertake?

  1. To satisfy the guaranteed party's obligation if the debtor fails to pay Correct answer.
  2. To purchase the debtor's assets at market value
  3. To share in the debtor's business profits
  4. To provide a loan to the debtor at no charge

Explanation

Kafalah is the undertaking by the guarantor to meet the debtor's obligation upon default. It creates a contingent liability for the guarantor, who may recover from the debtor. It does not involve profit sharing or asset purchase.

Question 20Shari'ah Standards

A bank wishes to charge a fee for issuing a kafalah (guarantee) to a customer. How does AAOIFI view this?

  1. A fee may be charged only if it equals the guaranteed amount
  2. No fee may be charged because guarantees must always be gratuitous
  3. A fee may be charged only if interest is also applied
  4. A fee may be charged for the guarantee service, as it is not a loan-based charge Correct answer.

Explanation

Charging a fee for providing a guarantee service is generally accepted where it is for the service and not a charge on a loan. The fee must not be structured as a time-based increase on a debt. It need not equal the guaranteed amount.

Question 21Shari'ah Standards

In an ijarah muntahia bittamleek, how is the transfer of ownership to the lessee typically effected at the end of the term?

  1. By the lessee simply continuing to pay rent indefinitely
  2. By converting the lease into an interest-bearing loan
  3. Automatically by operation of the lease contract itself
  4. Through a separate sale, gift, or transfer undertaking at a nominal or agreed price Correct answer.

Explanation

Ijarah muntahia bittamleek combines a lease with a separate promise or undertaking to transfer ownership at the end. The transfer must be documented separately from the lease to avoid making ownership contingent within the lease itself. A token sale or gift is common.

Question 22Shari'ah Standards

A customer defaults before taking delivery in a murabahah where the bank has already purchased the asset. The bank sells the asset to a third party at a loss. How is this loss treated?

  1. It is the bank's loss as the owner of the asset at the time of the default Correct answer.
  2. It is shared equally between bank and customer
  3. It must be recovered from the defaulting customer as a penalty
  4. It must be added to the customer's future murabahah price

Explanation

Before the murabahah sale to the customer is concluded, the bank owns the asset and bears the risk of loss on resale. The customer's promise to purchase is generally binding only in limited respects and does not transfer the loss. Recovery as a penalty or price addition is not permitted.

Question 23Shari'ah Standards

In a musharakah, one partner contributes capital in the form of a debt owed to him by a third party. How does AAOIFI generally treat such a contribution?

  1. Debt is treated as equivalent to cash without any conditions
  2. Debt may be contributed but the related risks and valuation must be clearly agreed and disclosed Correct answer.
  3. Debt contribution converts the partnership into a loan
  4. Debt may never be contributed under any circumstance

Explanation

AAOIFI permits contribution of receivables or debts in musharakah with conditions on valuation and risk allocation, which must be clearly specified. The contribution does not convert the partnership into a loan. Full disclosure protects the partners from gharar.

Question 24Shari'ah Standards

A takaful operator uses a wakalah model with a mudarabah element for investment. How are surplus and investment profit typically allocated?

  1. All surplus and profit belong to the operator as a fee
  2. Surplus is distributed only to the operator's shareholders
  3. All surplus and profit belong to participants with no operator share
  4. Investment profit is shared per the mudarabah ratio, while underwriting surplus is treated under the wakalah terms Correct answer.

Explanation

In a hybrid wakalah-mudarabah takaful model, investment profit is shared according to the agreed mudarabah ratio while underwriting surplus is handled under the wakalah arrangement and participant entitlements. Neither party takes everything. The structure separates underwriting from investment results.

Question 25Shari'ah Standards

A bank plans to finance a construction project where the contractor requires staged payments over three years. Which structure best fits, and why?

  1. Salam, because it requires full advance payment of the price
  2. Murabahah, because the asset already exists at the outset
  3. Sarf, because payments occur over time
  4. Istisna, because it accommodates phased payment and specified construction Correct answer.

Explanation

Istisna is suited to construction and manufacturing with flexible payment schedules, including instalments over the build period. Salam requires full immediate price payment, which does not match staged construction finance. Murabahah presupposes an existing asset.

Question 26Shari'ah Standards

Under AAOIFI Shari'ah standards, what is the essential nature of a murabahah contract?

  1. A partnership in which profits are shared according to capital
  2. A lease of an asset for a rental fee
  3. A sale of goods at cost plus a disclosed profit margin Correct answer.
  4. A loan repayable with a fixed service charge

Explanation

Murabahah is a sale contract in which the seller discloses the cost of the asset and adds a stated profit margin. It is a sale of goods, not a partnership or a loan. The buyer must know the cost base so the markup is transparent.

Question 27Shari'ah Standards

In an ijarah contract, who is responsible for the major structural maintenance of the leased asset under AAOIFI standards?

  1. The takaful operator covering the asset
  2. Both parties equally, by default
  3. The lessor, because he retains ownership of the asset Correct answer.
  4. The lessee, because he has physical possession

Explanation

In ijarah the lessor remains the owner, and ownership carries the burden of major maintenance and ownership-related risks. The lessee bears routine operational upkeep. Shifting ownership obligations to the lessee is generally not permitted.

Question 28Shari'ah Standards

What is the essential requirement for a valid musharakah contract?

  1. The managing partner receives a fixed salary only
  2. Each partner contributes capital and shares profit by a stated ratio Correct answer.
  3. One partner guarantees the capital of the other
  4. Profit is fixed as a percentage of capital contributed

Explanation

Musharakah requires all partners to contribute capital and to agree on a profit-sharing ratio, while losses are shared in proportion to capital. Profit cannot be fixed as a return on capital. Guaranteeing another partner's capital would convert the arrangement into a loan.

Question 29Shari'ah Standards

Under AAOIFI standards, what is the ruling on combining a murabahah sale with a promise (wa'd) from the customer to purchase?

  1. The promise is binding on the customer if it is unilateral and conditioned Correct answer.
  2. The promise converts the contract into a forward sale
  3. The promise is prohibited in all circumstances
  4. The promise may be used only by the seller, not the buyer

Explanation

AAOIFI permits a unilateral promise to purchase, and it can be made binding where the customer has caused the institution to incur actual loss. The promise is separate from the sale contract itself. It does not convert the arrangement into a forward sale.

Question 30Shari'ah Standards

A bank acting as mudarib earns a profit on a mudarabah investment. Under AAOIFI rules, how is a loss on the mudarabah capital generally treated?

  1. Deducted from the mudarib's agreed profit share first
  2. Borne equally by the rabb-ul-mal and the mudarib
  3. Borne by the rabb-ul-mal alone, unless the mudarib breached his duties Correct answer.
  4. Borne by the mudarib alone in all cases

Explanation

In mudarabah the capital provider bears financial loss, while the mudarib loses his effort, unless the loss results from the mudarib's misconduct or negligence. The mudarib does not share in financial loss by default. This reflects the principle that the profit-sharing party does not bear capital loss.

Question 31Shari'ah Standards

In a diminishing musharakah used for home finance, how does the customer's ownership in the property change over time?

  1. The customer gradually buys the bank's share until he owns the whole property Correct answer.
  2. The customer owns the property from the start and pays a loan
  3. Ownership transfers only on default of the final instalment
  4. The bank retains ownership and the customer only rents indefinitely

Explanation

In diminishing musharakah the bank and customer jointly own the asset, and the customer purchases the bank's units in instalments alongside rental payments. Ownership shifts gradually until the customer holds full title. The bank's share is not retained permanently.

Question 32Shari'ah Standards

Under AAOIFI sarf rules, when two parties exchange gold for gold, what is required for the exchange to be valid?

  1. Payment in a different currency of equal value
  2. A guarantee from a third party for both sides
  3. Immediate hand-to-hand settlement and equal quantities Correct answer.
  4. Deferred delivery with a stated markup

Explanation

Gold and silver are ribawi commodities, so exchanging them for the same genus requires equal quantity and immediate possession. Deferment is not permitted. Any markup or delay would constitute riba.

Question 33Shari'ah Standards

In an istisna contract, what is the Shari'ah position on the manufacturer's ability to subcontract the work to another party?

  1. The buyer must approve the subcontractor's price before work begins
  2. The manufacturer may subcontract unless the contract prohibits it, but remains responsible Correct answer.
  3. The manufacturer may subcontract and transfer responsibility to the subcontractor
  4. The manufacturer may never subcontract the work to another party

Explanation

In istisna the manufacturer may engage a subcontractor unless the contract stipulates otherwise, but he remains liable to the buyer for delivery of the specified item. Responsibility does not pass automatically to the subcontractor. The buyer's consent to price is not a general requirement.

Question 34Shari'ah Standards

What is the essential characteristic of a wadiah arrangement in an Islamic bank?

  1. The depositor becomes a partner in the bank's investments
  2. The bank holds funds as a trust and may guarantee their return Correct answer.
  3. The bank pays a fixed contractual return on the deposit
  4. The bank shares profits and losses with the depositor

Explanation

Wadiah is a safekeeping arrangement in which the bank holds funds amanah-style and, under AAOIFI, may guarantee return of the deposit. Any reward to the depositor is discretionary, not contractual. It is not a profit-and-loss partnership.

Question 35Shari'ah Standards

Under AAOIFI standards, what is the nature of a hibah (gift) sometimes given by a bank to its wadiah depositors?

  1. A discretionary gift that must not be contractually promised Correct answer.
  2. A penalty charged for early withdrawal
  3. A share of the bank's equity capital
  4. A fixed return agreed at the time of deposit

Explanation

Any reward to wadiah depositors is a discretionary gift (hibah) and must not be pre-agreed as a contractual return, otherwise it becomes riba. The bank is not obliged to pay it. It cannot be structured as a guaranteed yield.

Question 36Shari'ah Standards

What is the Shari'ah basis for the permissibility of a kafalah (guarantee) contract?

  1. The guarantor provides a loan to the debtor without interest
  2. The guarantor assumes the obligation to satisfy the debt if the debtor fails Correct answer.
  3. The guarantor purchases the debt from the creditor at a discount
  4. The guarantor becomes a partner in the debtor's business

Explanation

Kafalah is a guarantee in which the kafeel undertakes to meet the debtor's obligation if the debtor defaults. It is a gratuitous act of securing a right, not a sale of debt. The guarantor does not acquire the debt by purchase.

Question 37Shari'ah Standards

A customer pledges a car to a bank as rahn to secure a financing. What may the bank generally do with the pledged asset while the debt is outstanding?

  1. Use the car for its own operations without consent
  2. Hold it as security and, with consent, charge a reasonable custody fee Correct answer.
  3. Transfer ownership of the car to itself on signing
  4. Sell the car and keep the proceeds as profit

Explanation

In rahn the pledged asset stays in the pledgor's ownership and serves only as security; the pledgee may hold it and, where agreed, charge an actual custody cost. The pledgee may not exploit the asset for gain. Ownership does not pass on signing.

Question 38Shari'ah Standards

Under AAOIFI standards, how should a bank treat a murabahah contract in which the customer fails to pay instalments on time?

  1. Compound the penalty onto the outstanding principal
  2. Add the penalty to the bank's profit as compensation
  3. Seize the asset automatically without notice
  4. Charge a late payment penalty donated to charity, without adding it to income Correct answer.

Explanation

AAOIFI permits a late payment charge as a deterrent, but it must be donated to charity and not treated as bank income. This prevents the charge from becoming riba. Adding it to profit or compounding it would be impermissible.

Question 39Shari'ah Standards

What is the essential subject matter of an ijarah contract?

  1. The sharing of profits from an asset's use
  2. The lending of money at a service charge
  3. The sale of the asset itself for a lump sum
  4. The usufruct of a specified asset for a stated period in return for rent Correct answer.

Explanation

Ijarah transfers the usufruct (benefit) of an asset for a defined period in exchange for rent, while ownership stays with the lessor. It is not a sale of the asset. The rent must be fixed for the term.

Question 40Shari'ah Standards

In a salam contract, what must be specified at the time of contracting for the contract to be valid?

  1. Only the total price paid upfront
  2. The identity of the ultimate end buyer
  3. The commodity, its quality, quantity, and the delivery date Correct answer.
  4. The location of the seller's warehouse

Explanation

Salam requires precise specification of the commodity's type, quality, quantity, and the delivery date, along with full payment of the price at the time of contract. Ambiguity in these terms renders the contract defective. The end buyer's identity is irrelevant.

Question 41Shari'ah Standards

Under AAOIFI standards, what is the ruling on a bank charging a fee for issuing a kafalah (guarantee) on behalf of a customer?

  1. A fee may be charged only if it equals a percentage of the guaranteed amount
  2. The fee must be added to the guaranteed principal
  3. No fee of any kind may ever be charged
  4. A fee may be charged for the service, provided it is not tied to the guaranteed amount as a percentage Correct answer.

Explanation

AAOIFI permits a service fee for issuing a kafalah, but it should not be structured as a percentage of the guaranteed amount, which would resemble riba. The fee compensates for the service, not for the money guaranteed. It is not added to the principal.

Question 42Shari'ah Standards

In a takaful wakalah model, how is the underwriting surplus generally treated under AAOIFI standards?

  1. Retained entirely by the operator as profit
  2. Paid to the operator as a fixed commission
  3. Distributed to participants as agreed, after the operator's share is determined Correct answer.
  4. Used to pay dividends to the operator's shareholders

Explanation

In a wakalah-based takaful model the surplus from the participants' fund is generally returned to participants or allocated as agreed, after the operator's remuneration is settled. The operator does not own the surplus outright. Shareholders are not paid from the participants' fund.

Question 43Shari'ah Standards

What distinguishes a ju'alah contract from an ijarah contract?

  1. Ju'alah is a loan, while ijarah is a sale
  2. Ju'alah requires upfront capital, while ijarah does not
  3. Ju'alah transfers ownership, while ijarah transfers usufruct
  4. Ju'alah rewards a defined result, while ijarah pays for a usufruct over time Correct answer.

Explanation

Ju'alah is a reward contract for achieving a specified result, such as finding a lost item, whereas ijarah pays for the use of an asset or service over a period. In ju'alah the reward is contingent on the outcome. Neither contract is a loan.

Question 44Shari'ah Standards

A customer wishes to obtain liquidity by selling a murabahah receivable to a third party at a discount before maturity. Under AAOIFI standards, how is this generally treated?

  1. It is permitted only if the buyer is the bank's subsidiary
  2. It is permitted if the discount is donated to charity
  3. It is not permitted because it amounts to selling a debt for less than its face value Correct answer.
  4. It is permitted at any agreed discount to the buyer

Explanation

Selling a debt (bay' al-dayn) to a third party at a discount is generally prohibited under AAOIFI because it involves riba. The receivable must be recovered at face value from the obligor. Discounting to a third party is not an acceptable liquidity tool.

Question 45Shari'ah Standards

What is the essential requirement of a wakalah contract regarding the agent's authority?

  1. The agent guarantees all outcomes of the delegated task
  2. The agent may act beyond the mandate if it benefits the principal
  3. The agent becomes a partner in the principal's assets
  4. The agent acts within the scope defined by the principal and in the principal's interest Correct answer.

Explanation

Wakalah is an agency in which the wakeel acts within the scope authorized by the principal and in the principal's interest. Acting beyond the mandate exposes the agent to liability. The agent does not become a partner or automatically guarantee results.

Question 46Shari'ah Standards

Under AAOIFI standards, how is a murabahah sale to a customer who will pay in instalments documented in relation to the asset?

  1. The bank may sell the asset it does not yet possess on credit
  2. The bank may sell the asset before acquiring it from the supplier
  3. The bank must own the asset before selling it to the customer Correct answer.
  4. The bank may act as the customer's agent to buy and immediately resell

Explanation

In murabahah the bank must acquire ownership of the asset, bearing ownership risk, before selling it onward to the customer. Selling what one does not own is prohibited. Agency arrangements cannot be used to bypass this ownership requirement.

Question 47Shari'ah Standards

In an ijarah muntahia bittamleek, how is ownership transferred to the lessee at the end of the term under AAOIFI standards?

  1. By the lessee simply continuing to pay rent
  2. By transferring ownership at the start of the lease
  3. Through a separate sale or gift executed at or before the end of the lease Correct answer.
  4. Automatically by operation of the lease contract itself

Explanation

The transfer in ijarah muntahia bittamleek must be effected through a separate sale or gift, not automatically by the lease contract. The lease itself concerns usufruct only. Ownership does not pass at the outset.

Question 48Shari'ah Standards

Under AAOIFI standards, what is the treatment of a security deposit (hamish jiddiyyah) taken by a bank before entering a murabahah?

  1. It is counted as the bank's profit immediately
  2. It is held as security for the customer's promise and may be used to cover actual loss Correct answer.
  3. It is treated as part of the sale price from the outset
  4. It is non-refundable in all circumstances

Explanation

Hamish jiddiyyah is a security deposit held against the customer's promise to purchase; it may be applied to actual loss suffered if the customer reneges, and any excess is returned. It is not part of the price at the outset. It is not automatically forfeited.

Question 49Shari'ah Standards

What is the Shari'ah basis for the permissibility of a qard hasan (benevolent loan)?

  1. It is a sale of money for money at a markup
  2. It is an interest-free loan repaid in the same amount, seeking reward from Allah Correct answer.
  3. It is a loan repaid with a fixed service charge to the lender
  4. It is a partnership in which the lender shares profits

Explanation

Qard hasan is an interest-free loan in which the borrower repays the principal only, and the lender seeks reward from Allah. Any stipulated increase would be riba. It is not a partnership or a currency sale.

Question 50Shari'ah Standards

A bank wishes to finance a construction project where the contractor needs staged payments over three years. Which contract best fits, and why?

  1. Ijarah, because the contractor will lease the equipment
  2. Murabahah, because the asset already exists and can be sold on credit
  3. Salam, because it requires full upfront payment of the price
  4. Istisna, because it accommodates manufactured assets with staged or deferred payment Correct answer.

Explanation

Istisna is suited to manufacturing or construction where the asset does not yet exist and the price may be paid in stages or deferred. Salam requires full payment at contract. Murabahah requires an existing asset owned by the bank.