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AAOIFI CPSS practice questions

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Question 1Shari'ah Standards

Under AAOIFI Shari'ah standards, a Murabaha sale is best described as which of the following?

  1. A partnership in profit and loss
  2. A sale at cost plus a disclosed profit margin Correct answer.
  3. A lease ending in ownership transfer
  4. A loan repaid with a gift

Explanation

Murabaha is a sale in which the seller discloses the cost of the asset and adds a known profit margin, so the selling price is cost plus markup. It is a sale, not a financing lease or partnership.

Question 2Shari'ah Standards

In a Mudarabah contract, who bears the financial loss when the business incurs a loss without negligence by the manager?

  1. The Mudarib up to his capital
  2. The Mudarib alone
  3. Both parties equally
  4. The Rabb al-Mal alone Correct answer.

Explanation

In Mudarabah the capital provider (Rabb al-Mal) bears monetary loss, while the Mudarib loses his effort and expected share of profit, absent misconduct. Profit is shared per agreement, but loss falls on capital.

Question 3Shari'ah Standards

Which contract is used when a bank purchases an asset and leases it to a customer for a rental, with a separate promise to transfer ownership at the end?

  1. Salam
  2. Murabaha
  3. Istisna
  4. Ijarah Muntahia Bittamleek Correct answer.

Explanation

Ijarah Muntahia Bittamleek is a lease that concludes with the transfer of ownership to the lessee through a separate promise or gift. The rental structure distinguishes it from sale-based contracts.

Question 4Shari'ah Standards

In a Salam contract, what is the essential characteristic of the price?

  1. Left to be negotiated later
  2. Paid in full at the time of contract Correct answer.
  3. Paid on delivery of goods
  4. Paid in installments after delivery

Explanation

Salam requires the full price to be paid at contract conclusion in exchange for a deferred, precisely described commodity. This prepayment is what distinguishes Salam from an ordinary deferred sale.

Question 5Shari'ah Standards

Riba al-Fadl arises in which situation?

  1. Charging rent for a leased house
  2. Exchanging like commodities in unequal quantities Correct answer.
  3. Paying a fee for a service
  4. Selling goods at cost plus profit

Explanation

Riba al-Fadl is the excess arising when ribawi commodities of the same kind are exchanged in unequal measure. Equality is required when the underlying cause (same commodity) is present.

Question 6Shari'ah Standards

What does the Shari'ah standard on Takaful require regarding the relationship between participants and the operator?

  1. A single pooled account owned by the operator
  2. An interest-bearing deposit held by the operator
  3. Separate participant fund managed by the operator Correct answer.
  4. A loan from the operator to participants

Explanation

Takaful is structured with a participants' fund kept separate from the operator's own assets, and the operator manages it for a fee or a share of surplus. This separation supports the cooperative and mutual nature of Takaful.

Question 7Shari'ah Standards

In a Musharakah arrangement, how are profits typically distributed?

  1. According to a pre-agreed ratio Correct answer.
  2. In proportion to capital only
  3. Equally regardless of capital
  4. At the manager's discretion

Explanation

Musharakah profits are shared according to a ratio agreed in the contract, which may differ from the capital contribution ratio. Losses, by contrast, are shared strictly in proportion to capital.

Question 8Shari'ah Standards

Which statement best describes the Shari'ah view of a pure money loan (Qard) that stipulates an additional payment on repayment?

  1. It is a valid profit-sharing return
  2. It is riba and prohibited Correct answer.
  3. It is a permissible service charge
  4. It is treated as a gift

Explanation

Any stipulated increase on a loan of money constitutes riba, which is prohibited. A Qard must be repaid in the same amount, though a voluntary gift without stipulation is permitted.

Question 9Shari'ah Standards

A customer wants a bank to manufacture and deliver custom machinery to specification over twelve months. Which contract fits best?

  1. Murabaha
  2. Salam
  3. Wakalah
  4. Istisna Correct answer.

Explanation

Istisna is designed for items that must be manufactured or constructed to specification, with the price and delivery terms agreed at the outset. It permits staged payment and progress-linked delivery.

Question 10Shari'ah Standards

A bank buys an asset and immediately sells it to a customer at cost plus profit, but the customer has no intention of taking physical delivery. What Shari'ah concern arises?

  1. The sale may resemble a mere financing arrangement lacking genuine risk Correct answer.
  2. The contract becomes a lease
  3. The asset must be gold or silver
  4. The profit margin is automatically riba

Explanation

Murabaha requires a genuine sale where the institution bears ownership risk before resale. Arrangements where the asset never truly passes through ownership risk may be viewed as a disguised loan.

Question 11Shari'ah Standards

In a diminishing Musharakah home financing, how does the customer's ownership position change over time?

  1. It decreases as the bank buys shares
  2. It stays fixed until maturity
  3. It increases as the customer buys the bank's share Correct answer.
  4. It is irrelevant to the contract

Explanation

Diminishing Musharakah involves joint ownership in which the customer gradually purchases the institution's share, increasing his own ownership until full title is acquired. Rent is adjusted as the ownership proportions change.

Question 12Shari'ah Standards

Which condition is required for the subject matter of a sale to be Shari'ah compliant?

  1. It may be delivered by a third party only
  2. It may be unknown if the price is low
  3. It may be an unlawful substance if consented
  4. It must be precisely identified and existent Correct answer.

Explanation

The object of sale must be known, existent, and capable of delivery, and must be permissible in itself. Excessive uncertainty about the subject matter invalidates the sale.

Question 13Shari'ah Standards

A bank acts as agent for a customer to purchase goods, then later buys them from the customer. Which two contracts are sequenced here?

  1. Mudarabah followed by Qard
  2. Ijarah followed by Salam
  3. Wakalah followed by Murabaha Correct answer.
  4. Kafalah followed by Rahn

Explanation

The bank first acts as the customer's agent (Wakalah) to acquire the asset, then purchases it and resells at a markup (Murabaha). Sequencing and separation of the two contracts are important to avoid combining incompatible arrangements.

Question 14Shari'ah Standards

What distinguishes a valid Salam commodity description?

  1. It may be any future crop unspecified
  2. It must be specified by quality and quantity Correct answer.
  3. It must be delivered immediately
  4. It must be a unique handmade item

Explanation

Salam requires the commodity to be described precisely in quality and quantity so that the deferred obligation is determinable. Immediate delivery would defeat the purpose of the forward prepayment.

Question 15Shari'ah Standards

Which of the following best reflects the Shari'ah treatment of a penalty clause for late payment in a Murabaha?

  1. It is prohibited in all forms
  2. It converts the sale into a loan
  3. It is treated as additional profit for the bank
  4. It may be donated to charity rather than taken as income Correct answer.

Explanation

AAOIFI standards permit a late-payment penalty to deter delay, but the amount is typically directed to charity rather than retained as income, to avoid resembling riba. It is not treated as part of the bank's profit.

Question 16Shari'ah Standards

In Ijarah, who is generally responsible for major maintenance and structural repairs of the leased asset?

  1. The lessor as owner Correct answer.
  2. Both equally by default
  3. A third-party insurer
  4. The lessee as user

Explanation

Because ownership remains with the lessor in Ijarah, obligations tied to ownership such as major maintenance and structural repair fall on the lessor. Routine upkeep is typically the lessee's responsibility.

Question 17Shari'ah Standards

A Sukuk structure issues certificates representing ownership in a leased asset. Which underlying contract supports the periodic returns?

  1. Kafalah
  2. Rahn
  3. Qard
  4. Ijarah Correct answer.

Explanation

Ijarah-based Sukuk represent ownership of a leased asset, and the rental income flows to certificate holders. Returns therefore derive from rental rather than from interest on a loan.

Question 18Shari'ah Standards

Which element is essential for a valid Rahn (pledge) arrangement?

  1. The pledgee must take ownership immediately
  2. The pledged asset must be identifiable and valuable Correct answer.
  3. The pledge must bear interest
  4. The pledgor must forfeit all rights

Explanation

In Rahn, the pledged asset serves as security and must be identifiable and of value, while ownership remains with the pledgor. The pledgee holds possession as security, not as owner.

Question 19Shari'ah Standards

A customer asks a bank to guarantee a payment obligation to a supplier. Which contract applies?

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

Explanation

Kafalah is the contract of guarantee, under which the guarantor assumes responsibility for another party's obligation. It is commonly used for performance and payment guarantees.

Question 20Shari'ah Standards

What is the Shari'ah rule on combining a loan (Qard) with a sale in a single transaction?

  1. It is required in Murabaha
  2. It is encouraged for convenience
  3. It is permitted only in gold trading
  4. It is generally prohibited to avoid riba Correct answer.

Explanation

Tying a loan to a sale is generally prohibited because it can create a means to an unlawful increase, effectively masking riba. The two should be kept separate and independent.

Question 21Shari'ah Standards

In a parallel Salam arrangement, a bank acts as buyer in one Salam and seller in another. What risk does this structure primarily address?

  1. Delivery risk on the deferred commodity Correct answer.
  2. Collateral valuation risk
  3. Currency convertibility risk
  4. Regulatory licensing risk

Explanation

Parallel Salam allows the institution to match its purchase obligation with a corresponding sale, reducing exposure to non-delivery of the commodity. The two contracts must remain independent of each other.

Question 22Shari'ah Standards

Which of the following best describes the Shari'ah position on a fee charged by a Mudarib for managing the fund beyond his profit share?

  1. A fixed management fee may be permitted if agreed separately from the profit share Correct answer.
  2. It must equal the capital amount
  3. It replaces the profit share entirely
  4. It is always prohibited as riba

Explanation

AAOIFI standards allow a Mudarib to receive an agreed management fee in certain structures, provided it is distinct from the profit-sharing arrangement and does not guarantee a return to capital providers. The fee compensates effort rather than capital.

Question 23Shari'ah Standards

A bank uses a Tawarruq arrangement to provide cash financing. Which sequence correctly describes the standard structure?

  1. Purchase on credit, sale for cash to a third party Correct answer.
  2. Partnership with guaranteed profit
  3. Direct cash loan with a fee
  4. Lease of an asset with a gift

Explanation

In Tawarruq the institution sells a commodity to the customer on deferred payment, and the customer then sells it for cash to a third party, obtaining liquidity. The sequence must involve genuine sales and ownership movement.

Question 24Shari'ah Standards

Which condition must be met for a Sarf (currency exchange) transaction to be valid when both currencies differ?

  1. One party may retain the other's currency
  2. Payment may be deferred indefinitely
  3. The rate may be fixed after delivery
  4. Possession must be exchanged in the same session Correct answer.

Explanation

In Sarf, when the currencies differ, exchange must occur hand-to-hand in the same session, though the rates may differ. Deferred settlement of currency exchange is prohibited.

Question 25Shari'ah Standards

A cooperative offers protection to members where contributions are treated as donations and surplus is distributed according to agreed rules. Which concept does this reflect?

  1. Guaranteed-return investment
  2. Interest-based insurance
  3. Unsecured lending
  4. Tabarru-based Takaful Correct answer.

Explanation

Takaful rests on mutual donation (Tabarru) into a participants' fund, from which claims are paid, with surplus distribution governed by agreed rules. This differs fundamentally from conventional insurance with guaranteed returns.

Question 26Shari'ah Standards

In a Mudarabah contract, who bears the financial loss when the business venture fails without any misconduct by the manager?

  1. The capital provider and manager equally, regardless of the size of capital
  2. Both parties in proportion to the profit-sharing ratio they agreed
  3. The manager alone, because the manager is the party actively running the venture
  4. The capital provider alone, unless the manager was negligent or breached the agreed terms Correct answer.

Explanation

In Mudarabah the capital provider (rabb al-mal) bears monetary loss while the manager (mudarib) loses the effort invested, unless the manager was negligent, breached terms, or acted outside the agreed scope. Profit is shared per agreement but loss falls on capital.

Question 27Shari'ah Standards

Which feature distinguishes a valid Ijarah Muntahia Bittamleek from an ordinary operating lease in Shari'ah terms?

  1. It transfers ownership to the lessee at the end through a separate sale or gift, not through the lease itself Correct answer.
  2. It fixes the rental at a level that already includes the eventual purchase price of the asset
  3. It requires the lessee to bear all major maintenance costs from the first day of the term
  4. It obliges the lessee to purchase the asset at the outset as a condition of the lease

Explanation

Ijarah Muntahia Bittamleek is a lease ending in ownership transfer via a separate promise, sale, or gift, kept distinct from the lease contract. The lease itself must not condition ownership transfer, and the lessor retains ownership obligations during the term.

Question 28Shari'ah Standards

Under the Shari'ah standard on Wakalah, how is an agent's fee typically treated?

  1. It is a fixed, known amount or clearly defined basis agreed in advance Correct answer.
  2. It is set unilaterally by the agent after the work is complete
  3. It is payable only if the principal makes a gain on the transaction
  4. It is a share of any profit the agent happens to generate

Explanation

In Wakalah the agency fee (ujrah) must be known and agreed at the outset so that the contract is free of ambiguity (gharar). It is not contingent on outcomes unless structured under a separate profit-sharing arrangement.

Question 29Shari'ah Standards

Which statement captures the Shari'ah requirement for the price in a Murabaha sale?

  1. The price may change if the buyer delays payment beyond the agreed date
  2. The markup may be left open and adjusted later according to market rates
  3. The cost must be concealed so the buyer cannot compute the markup
  4. The cost and the profit markup must both be disclosed and fixed at contract conclusion Correct answer.

Explanation

Murabaha requires disclosure of the cost and a defined profit markup, with the total price fixed and known at the time of sale. The price cannot increase merely because of late payment.

Question 30Shari'ah Standards

In a Salam sale, what is the Shari'ah position on the price?

  1. The full price must be paid in advance at the time of contracting Correct answer.
  2. The price is paid only after the goods are delivered and accepted
  3. The price may be left undetermined until delivery of the goods
  4. The price may be paid partly in advance and partly on delivery

Explanation

Salam requires the full price to be paid at the time of contracting, with the subject matter precisely described and a defined delivery date. This advance payment is the defining feature of the contract.

Question 31Shari'ah Standards

What is the Shari'ah ruling on a Kafalah (guarantee) in which the guarantor charges a fee for issuing the guarantee?

  1. A fee is generally not permissible for the guarantee itself, though actual documented costs may be recovered Correct answer.
  2. A fee is permissible if the beneficiary, rather than the guaranteed party, pays it
  3. A fee is permissible because the guarantor takes on real commercial risk
  4. A fee is permissible only when it is calculated as a percentage of the guaranteed amount

Explanation

Kafalah is a gratuitous act of benevolence, so charging a fee for the guarantee is not permitted; only actual administrative costs may be recovered. Linking the fee to the guaranteed amount would resemble riba.

Question 32Shari'ah Standards

Which of the following best describes the Shari'ah basis for distributing a Takaful surplus?

  1. It is paid to the Shari'ah supervisory board as a supervisory fee
  2. It is distributed to shareholders as a dividend on their capital
  3. It is retained entirely by the operator as part of its management reward
  4. It is returned to participants according to the basis approved by the participants or their representative body Correct answer.

Explanation

Surplus in a Takaful fund belongs to the participants and is distributed according to an approved policy, often after reserving for future claims. The operator's share is limited to the agreed management fee or mudarabah share.

Question 33Shari'ah Standards

What does the Shari'ah standard require regarding the object of a Rahn (pledge) held as security?

  1. It must be a perishable item that loses value quickly
  2. It must be a permissible, identifiable asset capable of being sold to recover the debt Correct answer.
  3. It must be cash of equal value deposited with the creditor
  4. It must be owned by the creditor rather than the debtor

Explanation

The pledged asset in Rahn must be Shari'ah-compliant, identifiable, and capable of being sold to satisfy the debt if needed. It normally belongs to the debtor and is held by the creditor as security.

Question 34Shari'ah Standards

A client needs working capital but has no identifiable goods for a Salam. Which financing structure is commonly used to generate cash while remaining within Shari'ah boundaries?

  1. Salam, with the client as seller of goods that do not yet exist
  2. Muzara'ah, with the client contributing land for crop sharing
  3. Ijarah, with the client leasing equipment it already owns
  4. Tawarruq, involving a sale to the client on deferred payment followed by the client's sale of the asset for cash to a third party Correct answer.

Explanation

Tawarruq allows a client to obtain cash by purchasing an asset on deferred payment and then selling it to a third party for immediate cash. The sequence must be genuine, with real ownership and possession at each stage.

Question 35Shari'ah Standards

A bank and a client agree that the bank will sell a commodity to the client for a deferred price, and the client then sells it to a third party for cash. Which Shari'ah condition is most critical for the validity of this arrangement?

  1. The deferred price must be lower than the cash price
  2. The client must take actual or constructive possession before selling to the third party Correct answer.
  3. The third party must be a subsidiary of the same bank
  4. The commodity must remain with the bank until the client repays

Explanation

In a valid Tawarruq the client must acquire the commodity and take possession (actual or constructive) before reselling it, so that the sale is not a sale of what one does not own. The third party should be independent to avoid circularity.

Question 36Shari'ah Standards

In a Musharakah Mutanaqisah (diminishing partnership) financing, what happens if the customer defaults before completing the buyout of the bank's share?

  1. The customer must pay the full original price of the asset regardless of ownership
  2. The customer forfeits all contributions made toward the bank's share
  3. The bank takes the entire asset because it originated the financing
  4. The asset is sold and proceeds are shared according to the remaining ownership proportions Correct answer.

Explanation

In diminishing Musharakah each party owns a proportional share, so on default the asset is sold and proceeds are distributed per ownership. Any shortfall is treated as debt owed by the customer, not as forfeiture of prior contributions.

Question 37Shari'ah Standards

A company wants to raise funds by issuing certificates backed by its ownership of a fleet of trucks that it will continue to use. Which structure best fits this need?

  1. Sukuk al-Ijarah, where certificate holders own the assets and receive rental income Correct answer.
  2. Sukuk al-Istisna', where holders fund the manufacture of new trucks
  3. Sukuk al-Mudarabah, where holders share in the company's trading profits
  4. Sukuk al-Salam, where holders prepay for trucks to be delivered later

Explanation

Sukuk al-Ijarah are backed by tangible leased assets, with holders owning the assets and earning the rental stream. This suits an entity that already owns revenue-generating assets it wishes to keep using.

Question 38Shari'ah Standards

A customer wishes to obtain a car without taking ownership risk. The bank buys the car and leases it to the customer for three years. Midway through, the car is destroyed by an accident not caused by the customer. Who bears the loss of the asset?

  1. The bank, as owner of the leased asset, subject to any insurance recovery Correct answer.
  2. The insurance company alone, with no effect on the bank
  3. The customer, because the asset is in the customer's possession
  4. Both parties equally, since the lease is still running

Explanation

In Ijarah the lessor retains ownership and therefore bears the risk of destruction of the asset, apart from the lessee's misconduct or negligence. Insurance proceeds, where available, mitigate the loss.

Question 39Shari'ah Standards

A client asks a bank to manufacture a specialized production line over eighteen months, paying in installments as work progresses. Which contract is most appropriate?

  1. Murabaha, with the bank buying a finished production line and reselling it
  2. Salam, with the full price paid in advance at signing
  3. Ijarah, with the bank leasing the production line to the client
  4. Istisna', a manufacturing contract with a defined specification, price, and delivery schedule Correct answer.

Explanation

Istisna' is designed for commissioned manufacturing with a defined specification, price, and delivery date, and it permits installment payments tied to progress. It fits goods that must be built to order.

Question 40Shari'ah Standards

A bank acts as Mudarib for depositors and also lends its own capital to the same Mudarabah. How are profits allocated in such a combined arrangement?

  1. The bank receives the full profit because it contributed capital and management
  2. Profits are distributed equally among all parties without regard to ratios
  3. The bank shares in profit as Mudarib per the agreed ratio and also earns a return on its own contributed capital Correct answer.
  4. Depositors receive a fixed return regardless of actual profit

Explanation

When the Mudarib also contributes capital, it participates both as an investor entitled to a return on its capital and as manager entitled to the agreed Mudarabah share. The arrangement must keep the ratios clear and avoid guaranteeing returns to depositors.

Question 41Shari'ah Standards

In a Sarf transaction involving the exchange of gold for silver, which condition must be satisfied?

  1. The exchange may occur without specifying the quantities of each metal
  2. Payment of one countervalue may be deferred to a later date
  3. Both countervalues must be exchanged hand-to-hand before the parties separate Correct answer.
  4. Only one party needs to take possession at the time of contract

Explanation

For Sarf, when the two countervalues differ in genus (such as gold for silver), the exchange must be simultaneous, with possession taken before separation. Deferred settlement in such exchanges is not permitted.

Question 42Shari'ah Standards

A client wants to deposit funds with a bank and receive a return that is contractually guaranteed regardless of the bank's performance. How should the bank respond under Shari'ah?

  1. It should promise a minimum return and adjust it upward when profits are high
  2. It should guarantee the return because the client is a long-standing customer
  3. It should offer a Mudarabah or Musharakah-based investment account with returns contingent on actual results Correct answer.
  4. It should structure the deposit as a Qard with a fixed bonus on repayment

Explanation

Investment deposits in Islamic banking are based on profit-and-loss sharing, so returns cannot be guaranteed. Any promise of a fixed return would convert the arrangement into riba.

Question 43Shari'ah Standards

A charity wants to hold funds in a restricted account for a specific orphanage project. Which contract type best fits this arrangement?

  1. Murabaha, with the bank selling goods to the charity on credit
  2. Wakalah, with the bank acting as agent to apply the funds to the specified purpose Correct answer.
  3. Ijarah, with the bank leasing property to the charity
  4. Mudarabah, with the bank sharing profits from the charity's funds

Explanation

A restricted mandate where funds must be applied to a specified purpose fits Wakalah, with the bank acting as agent under defined instructions. Profit-sharing or credit sale contracts do not match a restricted charitable mandate.

Question 44Shari'ah Standards

In a valid Hibah (gift) arrangement used to reward depositors, what condition must be observed?

  1. The gift must equal a percentage of the deposit balance
  2. The gift must be unconditional and not contractually promised as a return Correct answer.
  3. The gift must be promised in the account-opening contract as a fixed rate
  4. The gift must be paid only to depositors who maintain the highest balances

Explanation

A Hibah used to reward depositors must be a voluntary, unconditional gift not stipulated in the contract, so it does not become a guaranteed return. Promising it as a fixed rate would make it contractual and problematic.

Question 45Shari'ah Standards

A company needs to hedge currency exposure but cannot use conventional forward contracts. Which Shari'ah-compliant mechanism is commonly used?

  1. A Murabaha sale of currency at a markup
  2. A conventional forward contract with a fixed exchange rate
  3. A promise (wa'd) to exchange currencies at a future date, settled through actual Sarf at maturity Correct answer.
  4. A loan in one currency repaid in another at a pre-agreed rate

Explanation

Currency hedging is often structured using a unilateral promise to enter into a Sarf exchange at a future date, with the actual exchange executed simultaneously at maturity. Conventional forwards and currency loans with exchange differentials are not permitted.

Question 46Shari'ah Standards

A bank and a client enter a Musharakah in which the bank contributes 70% and the client 30%, but they agree that profits will be split 50:50. Is this arrangement valid?

  1. Yes, provided the profit ratio is agreed by both parties, since profit sharing need not follow capital contribution Correct answer.
  2. Yes, but only if the bank also charges the client a separate management fee
  3. No, because profit must always be distributed in exact proportion to capital contributed
  4. No, because the client's smaller capital contribution invalidates consent

Explanation

In Musharakah, profit may be divided according to an agreed ratio that differs from the capital contribution, as long as it is mutually agreed and loss is borne in proportion to capital. The ratio must be a percentage of profit, not a fixed amount.

Question 47Shari'ah Standards

A client asks a bank to sell goods it does not yet own, with delivery promised in two months at a price to be fixed later. Which element makes this arrangement invalid?

  1. The client is a commercial entity rather than an individual
  2. The subject matter is not owned or possessed and the price is left undetermined Correct answer.
  3. The delivery period is stated as two months
  4. The goods are described by type and quantity

Explanation

A sale requires the seller to own or control the subject matter and the price to be fixed and known at contract conclusion. Selling what one does not own, with an undetermined price, breaches these requirements.

Question 48Shari'ah Standards

A bank structures a Sukuk where certificate holders' return depends on the performance of a pool of leased assets, but the bank promises to repurchase the assets at face value on maturity. What is the Shari'ah concern?

  1. The repurchase promise at face value effectively guarantees the capital and undermines genuine risk sharing Correct answer.
  2. The certificates cannot be traded because they represent ownership
  3. The lease structure itself is impermissible because it involves tangible assets
  4. The pool of assets must be limited to a single asset

Explanation

A repurchase undertaking at face value converts the Sukuk into a guaranteed-return instrument, undermining the required sharing of ownership risk. Genuine Sukuk returns should depend on the underlying assets' performance.

Question 49Shari'ah Standards

In a parallel Salam, a bank is buyer in one Salam contract and seller in another for the same goods. Which risk is most characteristic of this structure?

  1. Discrepancy risk between the two delivery dates or specifications, creating a gap the bank must manage Correct answer.
  2. Risk that the Mudarib will demand a higher profit share
  3. Ownership risk of leased assets during the lease term
  4. Currency risk arising from exchanging gold for silver

Explanation

Parallel Salam exposes the bank to the risk that the goods it receives under the first contract do not match the specifications or timing it must deliver under the second. Careful matching of terms is required to manage this gap.

Question 50Shari'ah Standards

A Takaful operator wishes to invest participants' contributions in a Mudarabah venture while also managing the fund. How should the operator's dual role be structured?

  1. The operator combines both roles without separate documentation since it is the same entity
  2. The operator acts as Mudarib for the investment and separately as agent for managing contributions, with each role documented and its reward defined Correct answer.
  3. The operator guarantees the investment results to the participants
  4. The operator takes any surplus from the investment as its own profit

Explanation

When the operator both manages the Takaful fund and invests contributions, the roles of agent (Wakalah) and Mudarib should be clearly separated and documented, with defined rewards for each. This preserves transparency and avoids conflating participants' funds with the operator's entitlements.