Fundamentals of Islamic Finance
What the exam tests
This domain tests the foundational prohibitions and positive principles that make a transaction Shariah-compliant: riba, gharar, maysir, and haram subject matter, plus risk sharing, asset backing, and clear ownership. Expect definitions and applied classification.
Core rules
- Riba includes any guaranteed increase on a loan and unequal exchange of same-kind ribawi commodities.
- Gharar is excessive uncertainty in price, delivery, or subject matter; minor uncertainty is tolerated.
- Maysir and qimar are gambling or gain from pure chance.
- Money is a medium of exchange, not a commodity to be rented.
- A valid sale needs offer and acceptance, owned subject matter, known price, and delivery capability.
- Profit must attach to ownership, risk, or effort; a fixed return on capital alone is riba.
Worked example
A bank proposes a 1,000 loan repaid at 1,100. The extra 100 is riba because it is a pre-agreed increase for time. Instead, the bank buys an asset for 1,000 and sells it to the client for 1,100 on deferred payment. The 100 is sale profit, provided the bank bears ownership risk before sale and the asset is genuine.
Traps
Calling any markup interest is wrong; structure matters. Conversely, a label such as murabahah does not cure a paper transaction with no asset. Do not treat all uncertainty as forbidden, and do not ignore haram goods or gambling elements.