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IBSL Diploma in Islamic Banking Exam study materials
IBSL Diploma in Islamic Banking Exam study resources

IBSL Diploma in Islamic Banking Exam practice questions

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Question 1Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

In Islamic commercial law, which term denotes the prohibited increase or interest charged on a loan of money?

  1. Gharar
  2. Ihtikar
  3. Riba Correct answer.
  4. Maysir

Explanation

Riba is the Arabic term for an unjustified increase in a loan or exchange, commonly rendered as interest or usury. Islamic law prohibits both riba al-nasi'ah, the increase tied to delay in repayment, and riba al-fadl, unequal exchange of like commodities. The prohibition is grounded in Quranic injunctions and hadith.

Question 2Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

A contract of sale is invalid under Islamic law when it contains excessive uncertainty over the subject matter, price, or delivery. Which concept describes this defect?

  1. Hiba
  2. Riba
  3. Gharar Correct answer.
  4. Maysir

Explanation

Gharar is excessive uncertainty or ambiguity in the essential terms of a contract, including the subject matter, price, or time of delivery. A sale with such uncertainty is generally invalid because consent cannot be soundly formed. Minor or unavoidable uncertainty is tolerated where it is incidental.

Question 3Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

Which prohibition requires Islamic banks to avoid financing casino operations and pure games of chance?

  1. Maysir Correct answer.
  2. Riba
  3. Sarf
  4. Gharar

Explanation

Maysir is gambling or participation in a game of chance where gain depends on an uncertain event. Banks and funds must avoid financing casino operations, lotteries, and similar activities because the returns are derived from chance rather than productive effort. This is an ethical screen separate from riba and gharar.

Question 4Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

Which international body issues the FAS accounting standards and the Shari'ah Standards widely used by Islamic financial institutions?

  1. IFSB
  2. IsDB
  3. IIFM
  4. AAOIFI Correct answer.

Explanation

AAOIFI, the Accounting and Auditing Organization for Islamic Financial Institutions, is based in Bahrain and issues Financial Accounting Standards and Shari'ah Standards. These standards are widely adopted or referenced by Islamic banks and regulators. IFSB focuses on prudential regulation, IIFM on documentation and liquidity, and IsDB on development financing.

Question 5Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

Which body sets prudential standards such as capital adequacy and liquidity requirements specifically for institutions offering Islamic financial services?

  1. IFSB Correct answer.
  2. AAOIFI
  3. IsDB
  4. CIBAFI

Explanation

The Islamic Financial Services Board (IFSB) is based in Kuala Lumpur and issues prudential standards, including capital adequacy and liquidity requirements, for institutions offering Islamic financial services. Its work adapts international regulatory norms to the risk profile of Islamic finance. AAOIFI, by contrast, focuses on accounting and Shari'ah standards.

Question 6Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

The modern experiment widely regarded as the first interest-free savings bank in Egypt was established in Mit Ghamr in which decade?

  1. 1960s Correct answer.
  2. 1980s
  3. 2000s
  4. 1940s

Explanation

The Mit Ghamr savings bank, established in Egypt in 1963 by Ahmad El-Najjar, is widely regarded as the first modern interest-free savings experiment. It combined savings services with profit-sharing investment in local projects. Its experience influenced later Islamic banks such as Dubai Islamic Bank in 1975.

Question 7Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

Protection of faith, life, intellect, lineage, and wealth is the classical formulation of which concept?

  1. Benevolent qard hasan
  2. Maqasid al-Shari'ah Correct answer.
  3. Prophetic Sunnah
  4. Riba al-fadl prohibition

Explanation

Maqasid al-Shari'ah refers to the higher objectives of Islamic law, classically summarised as protecting faith, life, intellect, lineage, and wealth. Islamic finance invokes these objectives to justify prohibitions, ethical screens, and contracts that serve public benefit. The concept guides jurists in applying rules to new financial circumstances.

Question 8Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

An Islamic equity fund applies business-activity screening. Which company is most clearly excluded from its permissible universe?

  1. A casino operator Correct answer.
  2. A software consultancy
  3. A hospital operator
  4. A halal food manufacturer

Explanation

Business-activity screening excludes companies whose core revenue comes from prohibited sectors such as gambling, alcohol, conventional interest-based finance, and adult entertainment. A casino operator derives income from maysir, so it is clearly outside a Shari'ah-compliant equity universe. Halal food, hospital services, and software consultancy are generally acceptable subject to further screening.

Question 9Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

In a musharakah-based financing, the bank's return depends on the venture's profit rather than a pre-agreed interest rate. This feature illustrates which core principle of Islamic finance?

  1. Debt trading at par
  2. Fixed-return guarantee
  3. Profit-and-loss sharing Correct answer.
  4. Unilateral gift

Explanation

Musharakah is a profit-and-loss sharing partnership in which the bank and the client contribute capital and share profits according to an agreed ratio. Losses are shared in proportion to capital contributed, unless caused by the manager's negligence or misconduct. The arrangement therefore embodies risk sharing rather than a guaranteed fixed return.

Question 10Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

Which development most directly supports the cross-border growth of Islamic finance by harmonising contract documentation and reducing legal uncertainty?

  1. Rising use of conventional interbank rates
  2. Standardised contract documentation Correct answer.
  3. Expansion of speculative derivatives
  4. Restriction of Islamic fintech platforms

Explanation

Standardised contract documentation, including common sukuk and murabaha templates, reduces legal uncertainty and transaction costs when Islamic finance crosses borders. Bodies such as IIFM and AAOIFI have promoted such harmonisation, supporting growth and investor confidence. Standardisation must still respect local law and Shari'ah interpretation.

Question 11Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

Which pair of sources is treated in Islamic jurisprudence as the primary foundation from which Islamic banking rules are derived?

  1. Ijma (consensus of scholars) and qiyas (analogy)
  2. The Qur'an and the Sunnah of the Prophet Correct answer.
  3. Fatwas issued by a bank's Shari'ah Supervisory Board and internal policy manuals
  4. Local commercial custom and the civil code of the bank's home country

Explanation

Islamic jurisprudence treats the Qur'an and the Sunnah as the revealed primary sources from which all other rulings flow. Ijma and qiyas are secondary tools applied where the primary texts are silent, while fatwas and bank policies are derived instruments that must remain consistent with the primary sources.

Question 12Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

Which institution is commonly identified as the first modern private commercial Islamic bank, incorporated in the United Arab Emirates in 1975?

  1. Bank Islam Malaysia Berhad
  2. Faisal Islamic Bank of Egypt
  3. Dubai Islamic Bank Correct answer.
  4. Jordan Islamic Bank

Explanation

Dubai Islamic Bank, incorporated in 1975, is widely cited as the first modern private commercial Islamic bank operating a full range of banking services. Earlier interest-free savings experiments, such as the Mit Ghamr savings house, were smaller ventures and are not classified as full commercial banks.

Question 13Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

An officer at an Islamic bank discloses a client's outstanding financing balance and repayment difficulties to a friend working at a competitor. Which core ethical value of Islamic banking does this conduct most directly violate?

  1. Ihsan, the pursuit of excellence and benevolence in conduct
  2. Amanah, the duty of trustworthiness over what has been entrusted Correct answer.
  3. Takaful, the principle of mutual solidarity and support
  4. Qana'ah, contentment with what one has and avoidance of greed

Explanation

Amanah obliges an institution to safeguard everything clients entrust to it, and confidential financial information falls squarely within that trust. Disclosing a client's position to a competitor breaches the duty of trust even where no measurable financial loss can be shown.

Question 14Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

A trader asks an Islamic bank to finance the bulk purchase of staple food stocks that the trader intends to withhold from the market until prices rise sharply. Which principle most directly makes the financing impermissible?

  1. The prohibition of riba, since the bank would earn a profit on the sale
  2. The obligation of zakat, since the goods would eventually be subject to zakat
  3. The prohibition of ihtikar, since withholding essential goods harms the public Correct answer.
  4. The prohibition of maysir, since the price movement resembles gambling

Explanation

Ihtikar is the deliberate withholding of essential goods in order to create artificial scarcity and drive up prices, and it is condemned because it inflicts harm on the wider public. Financing a scheme whose entire purpose is that harm would make the bank a participant in an unethical and unlawful objective, regardless of the contract's technical form.

Question 15Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

What is the principal function of a Shari'ah Supervisory Board within an Islamic bank?

  1. Setting the bank's monetary policy and managing its liquidity in the interbank market
  2. Reviewing products and transactions and issuing rulings on their compliance with Shari'ah Correct answer.
  3. Auditing the annual financial statements in accordance with international accounting standards
  4. Approving the bank's capital adequacy and liquidity ratios in line with prudential rules

Explanation

A Shari'ah Supervisory Board is an independent panel of Shari'ah scholars that examines contracts, approves new products and monitors whether operations remain within Shari'ah limits. Prudential ratios, monetary policy and statutory audits are the responsibility of the regulator, the central bank and the external auditor rather than the Board.

Question 16Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

Which Bahrain-based international body acts as the umbrella association of Islamic banks and financial institutions, concentrating on advocacy, information exchange and industry development rather than issuing standards?

  1. IFSB, the Islamic Financial Services Board
  2. IIFM, the International Islamic Financial Market
  3. AAOIFI, the Accounting and Auditing Organization for Islamic Financial Institutions
  4. CIBAFI, the General Council for Islamic Banks and Financial Institutions Correct answer.

Explanation

CIBAFI is the umbrella association that represents Islamic financial institutions and works through advocacy, information exchange and industry cooperation. Standard-setting and market infrastructure belong to other bodies: AAOIFI issues accounting and Shari'ah standards, the IFSB issues prudential standards, and the IIFM focuses on documentation and market practices.

Question 17Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

A sovereign plans to fund a solar power plant through certificates whose proceeds are earmarked for that project and independently reviewed against environmental criteria. Which description of the instrument is most accurate?

  1. A murabahah working-capital facility for the plant, carrying no earmarking of proceeds
  2. A salam contract to prepay for solar equipment, with no independent environmental verification
  3. A green sukuk, an asset-based Shari'ah-compliant certificate funding an environmental project Correct answer.
  4. A conventional sustainability bond whose return is permissible only if the coupon is capped at a charitable rate

Explanation

Green sukuk are Shari'ah-compliant, asset-based or asset-backed certificates whose proceeds are ring-fenced to environmentally beneficial projects and often checked by an independent reviewer. They show how the ethical screening embedded in Islamic finance can connect with ESG and sustainable-development objectives, an important part of the sector's future growth.

Question 18Basic principles, values and ethical dimensions of Islamic Banking & Finance (including history, future outlook and international bodies)

Critics describe parts of the industry as offering form without substance, pointing to debt-like murabahah structures that replicate conventional lending economics. Which statement best expresses the ethical concern behind this critique?

  1. Murabahah is impermissible in every interpretation because any markup over cost is riba
  2. Prioritising legal form over Shari'ah objectives risks losing the ethical substance of Islamic finance Correct answer.
  3. Formal compliance with contract conditions is sufficient, because Shari'ah judges only the documentation
  4. Islamic banks should abandon trade-based financing entirely and offer only equity partnerships

Explanation

The critique rests on the argument that Shari'ah compliance requires fidelity to the objectives of the law, not only to the mechanics of a contract. Where structures reproduce the economic result of an interest-based loan while satisfying formal conditions, the risk is that the risk-sharing and justice that justify Islamic finance are lost, a concern often framed through the maqasid al-Shari'ah.

Question 19Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

In the hierarchy of Sharia sources recognized in Islamic banking, which source is the primary and highest authority?

  1. The recorded Sunnah of the Prophet
  2. Analogical reasoning by jurists
  3. The consensus of qualified jurists
  4. The Quran Correct answer.

Explanation

The Quran is the primary source of Sharia and the highest authority because it is the revealed word of Allah. The Sunnah explains and elaborates the Quran, while ijma and qiyas are derived sources that operate where the primary texts are silent or require clarification.

Question 20Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

What does the Sunnah contribute as a source of Sharia in Islamic commercial law?

  1. It is customary practice that varies from one market to another
  2. It records the consensus of the companions on banking practices
  3. It comprises the sayings, actions and tacit approvals of the Prophet Muhammad Correct answer.
  4. It is the body of analogical rulings developed by later jurists

Explanation

The Sunnah is the second primary source and consists of the Prophet's sayings, actions and tacit approvals. It clarifies the Quran's general rules and provides concrete commercial rulings, such as the prohibition of specific riba transactions.

Question 21Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

Which of the following is a necessary condition for the object of sale (mabi') in a valid Islamic sale contract?

  1. The object must exist, be owned by the seller and be capable of delivery Correct answer.
  2. The object must be priced above its market value to avoid riba
  3. The object must be a prohibited item provided the buyer consents
  4. The object must be a future asset that the seller expects to acquire

Explanation

The object of sale must be existing, owned by the seller, capable of delivery, precisely known and permissible in Sharia. These conditions protect the buyer from gharar and prevent the sale of what the seller does not own.

Question 22Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

A customer exchanges 1 kg of high-quality dates for 2 kg of lower-quality dates, with both quantities handed over in the same session. Under Islamic commercial law, how is this exchange classified?

  1. A transaction containing riba al-fadl because the same genus was exchanged unequally Correct answer.
  2. A valid sale because both parties consented and delivery was immediate
  3. A valid sale because the dates differ in quality
  4. A permissible barter because the exchange is hand-to-hand

Explanation

When the same genus of a ribawi commodity is exchanged, the quantities must be equal and the exchange must be hand-to-hand; quality differences do not justify excess. If the parties wish to account for quality, they should sell each quantity separately for money and then buy what they want.

Question 23Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

Which of the following contracts contains excessive gharar (uncertainty) that would render it invalid under Islamic commercial law?

  1. Selling fish that are still in the river before they are caught Correct answer.
  2. Selling a specific car whose model, year and price are fully identified
  3. Selling a defined quantity of wheat at a price fixed at the time of contract
  4. Selling a house after the buyer has inspected it and agreed to the price

Explanation

Gharar invalidates a contract when uncertainty affects the existence, quantity, attributes or deliverability of the subject matter to a significant degree. Selling fish not yet caught makes existence and delivery highly uncertain, whereas the other examples identify the object, quantity and price sufficiently.

Question 24Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

Which of the following is the clearest example of qiyas being applied in Islamic commercial law?

  1. A jurist accepts a bank's charitable penalty clause because it is customary in the market
  2. A jurist prefers a lenient ruling because it serves the public interest
  3. A jurist prohibits an intoxicating narcotic by analogy with khamr because both share the effective cause of intoxication Correct answer.
  4. A jurist relies on a hadith that explicitly mentions narcotics

Explanation

Qiyas extends a ruling from an original case to a new case because both share the same effective cause (illah). Intoxication is the shared cause between khamr and the narcotic, so the prohibition is extended by analogy rather than by direct text.

Question 25Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

What constitutes ijma in the Sharia framework and why is it significant for Islamic banking?

  1. The majority vote of shareholders at an Islamic bank's general meeting
  2. The agreement of qualified mujtahids of a given era on a Sharia ruling Correct answer.
  3. The opinion of a single mufti issued in response to a bank's query
  4. The practice followed by a particular bank's Sharia committee

Explanation

Ijma is the consensus of qualified mujtahids of a particular era on a Sharia ruling. It is a secondary source that can settle interpretive questions and provide authoritative guidance where the primary texts admit more than one reading.

Question 26Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

A bank obtains a customer's signature on a sale contract by threatening loss of employment unless the customer signs. Under Islamic commercial law, what is the effect on the contract?

  1. The contract is binding because the customer had legal capacity
  2. The contract is valid because the price was fixed in advance
  3. The contract is valid because the signature was physically given
  4. The contract is defective because coercion (ikrah) negates genuine mutual consent Correct answer.

Explanation

Mutual consent (taradi) is a foundational condition of a valid Islamic contract. Coercion negates genuine consent, so the contract is defective even if the formal signature and price terms are present.

Question 27Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

Which statement correctly distinguishes riba al-nasi'ah from riba al-fadl?

  1. Riba al-nasi'ah arises from unequal quantity of the same genus, while riba al-fadl arises from deferment in a loan
  2. Riba al-nasi'ah arises from deferment in a ribawi exchange or loan, while riba al-fadl arises from unequal quantity of the same genus exchanged hand to hand Correct answer.
  3. Riba al-nasi'ah applies only to gold and silver, while riba al-fadl applies only to loans of money
  4. Riba al-nasi'ah is permitted in trade, while riba al-fadl is prohibited only in charitable loans

Explanation

Riba al-nasi'ah is the prohibited increase associated with delay or deferment, typically in loans and deferred exchanges of ribawi commodities. Riba al-fadl is the prohibited excess in quantity when the same genus is exchanged, even if delivery is immediate.

Question 28Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

A Sharia committee invokes maslahah mursalah to approve a new banking practice not addressed by Quran or Sunnah. Which condition must the identified benefit satisfy for this reasoning to be acceptable?

  1. It must be supported by the custom of a single local market
  2. It must be a genuine and general public benefit that does not contradict a clear Sharia text Correct answer.
  3. It must be a benefit recognized only by the bank's shareholders
  4. It must produce a profit greater than the bank's conventional competitors

Explanation

Maslahah mursalah considers a public benefit not explicitly addressed by the texts, but the benefit must be genuine, general and consistent with the objectives of Sharia. It cannot override a clear textual rule or serve a narrow private interest.

Question 29Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

In Islamic commercial law, the Arabic terms ijab and qabul refer to which element of a sale contract?

  1. The profit margin agreed in a murabaha sale.
  2. The physical possession of the sold object by the buyer.
  3. The charity penalty stipulated for late payment.
  4. The offer and acceptance that express mutual consent. Correct answer.

Explanation

Ijab is the offer and qabul is the acceptance; together they express the mutual consent (rida) that is a pillar of a valid sale. They are not the profit margin, possession, or a penalty clause, which belong to other contractual concepts.

Question 30Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

What does qabd mean in the context of an Islamic sale contract?

  1. A third-party guarantee securing payment of the price.
  2. The profit margin earned on a murabaha transaction.
  3. The bank's unilateral right to cancel a sale before delivery.
  4. Physical or constructive possession and handover of the subject matter. Correct answer.

Explanation

Qabd denotes taking possession of the subject matter, whether physically or constructively according to the contract and market practice. It is distinct from a cancellation right, a profit margin, or a guarantee, each of which has its own contractual term.

Question 31Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

A trader sells "one standard sack of rice" in a market where local custom fixes the sack size and weight. No kilogram figure is stated. How should this be assessed?

  1. Invalid, because the weight is not numerically stated in the contract.
  2. Invalid, because any unstated term creates excessive gharar.
  3. Valid, because 'urf (custom) can supply the required specification of the subject matter. Correct answer.
  4. Valid only if the buyer inspects the entire warehouse before signing.

Explanation

Under Islamic commercial law, 'urf (established custom) is a secondary source that can clarify terms left unspecified by the parties. Where a standard sack has a known local weight, the sale is sufficiently certain and the residual gharar is negligible.

Question 32Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

A Sharia board prefers a ruling that departs from a strict analogical conclusion because applying qiyas would cause undue hardship in a common banking practice. Which source is being used?

  1. Istihsan. Correct answer.
  2. Ijma.
  3. Sadd al-dhari'ah.
  4. Qiyas.

Explanation

Istihsan is juristic preference: it may set aside a strict qiyas result in favour of stronger evidence or to avoid undue hardship. Ijma is scholarly consensus, qiyas is the analogy being departed from, and sadd al-dhari'ah blocks means to harm.

Question 33Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

A bank signs a murabaha sale with a customer before it has purchased the goods from the supplier. What is the main Sharia issue?

  1. The bank is selling an asset it does not yet own or possess. Correct answer.
  2. The customer has not paid a security deposit.
  3. The profit margin is fixed rather than floating.
  4. The contract lacks a grace period for late payment.

Explanation

A murabaha sale requires the bank to own and possess the asset before it sells to the customer; otherwise it is a sale of what one does not own. A fixed profit margin is permissible, and a security deposit or grace period is not a pillar of validity.

Question 34Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

A local business custom allows a 3% deduction for early payment, but a contract tries to justify a monthly 3% charge on unpaid balances as "custom" despite the Quranic prohibition of riba. What is the correct hierarchy?

  1. The charge is valid if both parties are merchants.
  2. The charge is valid because it is below 5%.
  3. Custom always prevails because trade practices vary by region.
  4. Custom cannot override a clear Quranic prohibition; the charge is assessed as riba. Correct answer.

Explanation

A clear Quranic text (nass) prevails over local custom; 'urf operates only in gaps left by revelation. A time-based increase charged on an unpaid debt is the essence of riba, so labelling it custom does not validate it.

Question 35Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

In a salam contract for 10 tonnes of wheat, which set of terms is necessary for the contract to be valid?

  1. The wheat must already be harvested, owned, and physically present at the time of contract.
  2. A down payment of 10%, with the price and delivery date left to market practice.
  3. The seller may choose the quantity after harvest, provided the buyer approves.
  4. Full price paid at the time of contract, with the wheat's quality, quantity, and delivery date precisely specified. Correct answer.

Explanation

Salam is a forward sale in which the full price must be paid at the time of contract, while the subject matter is precisely described by quality, quantity, and delivery date. If the goods are already harvested and present, the transaction is a spot sale rather than salam.

Question 36Sharia Framework for Islamic Banking (sources of Sharia and conditions of Islamic commercial law)

How does bay' al-istisna' differ from bay' al-salam in a way that affects Islamic bank financing?

  1. Istisna' is a loan contract, while salam is a partnership contract.
  2. Istisna' can be used for manufactured goods with flexible payment, while salam requires the full price paid at contract and a fixed delivery date. Correct answer.
  3. Istisna' requires the object to be delivered immediately, while salam permits deferred delivery.
  4. Istisna' prohibits specifying the price, while salam requires it.

Explanation

Istisna' is an order to manufacture a specified good, and the price may be paid in stages or at delivery, giving flexibility for project finance. Salam, by contrast, requires the full price at contract and a fixed delivery date for a precisely described fungible commodity.

Question 37Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

In Islamic banking, a current account is normally structured as qard hasan. Which statement best describes the bank's treatment of such an account?

  1. The bank shares profits with the depositor under a pre-agreed ratio.
  2. The bank guarantees the deposit and promises no return. Correct answer.
  3. The bank pays a fixed return and calls it a gift.
  4. The depositor bears investment losses in proportion to the deposit.

Explanation

A current account based on qard hasan is a benevolent loan: the bank guarantees repayment and may use the funds, but it cannot contractually promise a return. Any return would convert the arrangement into riba, while profit-sharing belongs to investment accounts. Loss-bearing by the depositor is also inconsistent with the guarantee.

Question 38Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

An Islamic bank buys machinery for 100,000 and sells it to a customer for 110,000 payable in installments, disclosing the cost and mark-up. Which contract is used?

  1. Murabaha Correct answer.
  2. Ijarah
  3. Mudarabah
  4. Salam

Explanation

Murabaha is a cost-plus-profit sale in which the bank discloses the acquisition cost and the agreed mark-up to the customer. The deferred installment payment does not change the nature of the sale. Ijarah is a lease, mudarabah is a profit-sharing partnership, and salam is a forward purchase with advance payment.

Question 39Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

Which transaction is prohibited because it involves riba al-fadl?

  1. Deferred payment sale of a car at a disclosed cost-plus mark-up.
  2. Exchange of one kilogram of dates for two kilograms of equal quality. Correct answer.
  3. Fee charged by the bank for issuing a letter of guarantee.
  4. Spot exchange of equal quantities of gold for gold with immediate delivery.

Explanation

Riba al-fadl arises when the same genus of ribawi commodity is exchanged in unequal quantities, even if delivery is immediate. Dates for dates must be equal and hand to hand. Equal gold for gold is permissible, murabaha is a sale, and a guarantee fee is a service charge.

Question 40Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

In a two-tier mudarabah investment account, who bears the financial loss when the bank's venture loses money without any negligence by the bank?

  1. Investment account holders bear the loss unless the bank is negligent. Correct answer.
  2. The investment account holders alone bear the loss.
  3. The investment account holders and the bank share the loss equally.
  4. The bank alone bears the loss.

Explanation

In mudarabah the rabb-ul-maal, here the investment account holders, bears financial loss, while the mudarib loses the effort and expected share of profit. The bank is liable only if it breaches its fiduciary duties or is negligent. Equal loss-sharing would contradict the capital-provider structure.

Question 41Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

A bank leases equipment to a client for five years and, at maturity, the client acquires the equipment under a separate sale at a token price. Which structure is this?

  1. Qard hasan, a benevolent loan.
  2. Ijarah wa iqtina, a lease ending in ownership. Correct answer.
  3. Istisna, a construction finance contract.
  4. Murabaha, a cost-plus sale.

Explanation

Ijarah wa iqtina, also called ijarah muntahia bittamleek, combines a lease with a separate transfer of ownership at the end of the term. The rental payments compensate for usufruct, and the sale or gift must be documented separately. It is not a cost-plus sale, construction contract, or loan.

Question 42Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

An Islamic bank issues a letter of credit for an importer, pays the exporter against conforming documents, and charges a commission. Which contract most commonly underlies the bank's fee?

  1. Ijarah
  2. Musawamah
  3. Wakalah Correct answer.
  4. Mudarabah

Explanation

A letter of credit service is commonly structured as wakalah, with the bank acting as the importer's agent to arrange payment and documentation. The bank earns a fee for the agency service, not a profit share or interest. Murabaha may finance the underlying goods, but the letter of credit fee itself is agency-based.

Question 43Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

How does a sukuk al-ijarah differ from a conventional bond?

  1. It pays a fixed interest coupon and repays principal at maturity.
  2. It is a debt obligation of the issuer with no underlying asset.
  3. It is a short-term instrument used only by central banks.
  4. It represents ownership of a leased asset and pays rental income. Correct answer.

Explanation

Sukuk al-ijarah represents ownership in a leased asset, and the return to holders comes from rental income generated by that asset. A conventional bond is a debt obligation that pays interest and does not require asset ownership. This asset link is central to the shariah compliance of sukuk.

Question 44Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

A bank agrees to act as guarantor for a client's performance obligation and charges a fee for this service. Which contract is this?

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

Explanation

Kafalah is the contract of guarantee, under which the guarantor assumes responsibility for the client's obligation. A fee-based guarantee is often described as kafalah bil ujrah and is treated as a service charge. Rahn is a pledge, wadiah is safekeeping, and qard is a loan.

Question 45Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

In commodity murabaha used by Islamic banks for liquidity management, what is the essential role of the commodity?

  1. It represents the bank's equity share in the counterparty.
  2. It secures the loan against default by pledging a tangible asset.
  3. It creates a genuine sale and purchase so the return arises from a mark-up. Correct answer.
  4. It serves as a penalty clause for late payment.

Explanation

Commodity murabaha, often called tawarruq, uses a tangible commodity so that the transaction is structured as a sale with a disclosed mark-up rather than a loan with interest. The commodity is bought and sold, and the deferred price creates the return. The commodity is not collateral, equity, or a penalty.

Question 46Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

Which condition is required for a valid salam contract?

  1. The commodity must be delivered at the contract session.
  2. The subject matter may be left unspecified.
  3. The price may be paid in installments after delivery.
  4. The full price must be paid at the time of contract. Correct answer.

Explanation

Salam is a forward sale in which the buyer pays the full price at the time of contract for a specified commodity to be delivered later. The quantity, quality, and delivery date must be defined to avoid uncertainty. Immediate delivery would be a spot sale, and installment payment or an unspecified subject matter would invalidate the structure.

Question 47Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

An Islamic bank finances a house using musharakah mutanaqisah. Which statement best describes how this structure operates?

  1. The bank and customer co-own the property, with the customer gradually buying the bank's share Correct answer.
  2. The bank leases the property and transfers ownership to the customer immediately at the start
  3. The bank sells the property at a disclosed cost-plus mark-up payable in fixed installments
  4. The bank lends the purchase price interest-free and takes a mortgage over the property

Explanation

Musharakah mutanaqisah is a diminishing partnership: the bank and customer jointly own the asset, and the customer purchases the bank's equity share over time. Until the share is fully acquired, the customer typically pays rent for the portion still owned by the bank. This combines partnership and leasing features rather than a pure sale or interest-free loan.

Question 48Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

A customer places funds in a wadiah yad dhamanah savings account at an Islamic bank. How is any return paid to the customer normally characterised?

  1. A guaranteed interest payment based on the deposit tenor
  2. A discretionary hibah the bank may pay from its profits Correct answer.
  3. A capital gain credited when the account matures
  4. A contractual share of the bank's investment profit

Explanation

In wadiah yad dhamanah, the bank is entrusted with the funds and guarantees their return, but it is not obliged to pay a profit share. Any return is a discretionary gift (hibah) from the bank, not a contractual entitlement. This keeps the arrangement distinct from a profit-sharing investment account.

Question 49Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

A vehicle leased under an ijarah contract is destroyed in an accident that was not caused by the lessee's misconduct or negligence. Who bears the financial loss of the asset?

  1. The bank as lessor, because ownership and ownership-related risk remain with it Correct answer.
  2. The insurer alone, because the asset was insured by the lessee
  3. The lessee, because the vehicle was in its possession at the time
  4. The parties equally, because ijarah spreads asset risk between them

Explanation

In ijarah, the lessor retains ownership of the leased asset, and ownership-related risks such as destruction, major maintenance and insurance remain with the lessor. The lessee bears only the rental obligation and liability for damage caused by its own misconduct or negligence. This allocation is a defining feature that distinguishes ijarah from a conventional finance lease.

Question 50Islamic Banking Products and Services (operational structures, investment/liability products, finance/asset products, current accounts, business banking, trade finance, fee-based products, treasury operations)

A bank accepts a mudarabah investment deposit from a corporate client. Which arrangement is consistent with the profit-sharing rules?

  1. The bank sets the return by reference to a conventional benchmark rate plus a margin
  2. The bank guarantees a fixed monthly return of 5% on the deposited amount
  3. A ratio of actual profit, with the investor bearing losses absent negligence Correct answer.
  4. The bank pays a fixed amount per month and shares any surplus profit afterwards

Explanation

In mudarabah, the profit-sharing ratio must be expressed as a proportion of the actual profit, not as a fixed amount or a guaranteed return. The capital provider bears financial losses unless the mudarib breached its fiduciary duties or was negligent. A benchmark may be used for pricing or disclosure in some structures, but it cannot convert the return into a guaranteed interest-like payment.