Islamic Banking Operations
What the exam tests
This domain tests how an Islamic bank runs its deposit and financing book: current accounts, savings accounts, investment accounts, asset-side contracts, treasury, and operational controls. Questions often ask who bears loss and when profit is recognized.
Core rules
- Current accounts are usually qard: the bank owes the balance and no return is promised.
- Savings accounts may be wadiah or mudarabah; returns depend on the contract and bank policy.
- Investment accounts are commonly mudarabah: depositors share profit and bear losses unless the bank breaches its fiduciary duties.
- Financing must be asset-backed: murabahah, ijarah, salam, istisna, mudarabah, musharakah, or wakalah.
- Late payment penalties are not bank income; they normally go to charity.
Worked example
A depositor places 50,000 in a mudarabah investment account with a 60:40 profit share in the depositor's favour. The bank earns 5,000 profit on the pooled funds. The depositor receives 3,000 and the bank 2,000. If the pool makes a 1,000 loss, the depositor bears the capital loss unless the bank was negligent; the bank loses its effort and share of profit.
Traps
Do not promise a fixed return on an investment account. Do not treat a late fee as profit. Do not ignore commingling of funds or the bank's fiduciary duty. A current account balance is a liability, not an investment.