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Shariah RFP M3 study materials
Shariah RFP M3 study resources

Shariah RFP M3: Shariah Investment Principles and Regulatory Framework

Shariah RFP M3 · Work through your exam, one topic at a time.

All guide sections

Shariah Investment Principles and Regulatory Framework

What this domain tests

This domain tests the doctrinal foundation of Shariah investing - the prohibitions, the contracts that replace conventional structures, and the governance system that polices them. Questions usually ask you to link a rule to a product or to identify which authority decides a Shariah issue.

Core rules

  • Sources: Qur'an, Sunnah, ijma' (consensus) and qiyas (analogy), read through maqasid al-Shariah, including hifz al-mal (preservation of wealth).
  • Prohibitions: riba (a stipulated increase on a loan), gharar (excessive uncertainty in contract terms), maysir (gambling), haram subject matter, and zulm (injustice).
  • Permissible contracts: murabahah (cost-plus sale), ijarah (lease), mudarabah (profit-sharing), musharakah (partnership), wakalah (agency), salam and istisna (forward sale and manufacture).
  • Two-tier governance: the Securities Commission's Shariah Advisory Council issues rulings binding on the Islamic capital market; each institution's Shariah committee applies them. Supporting controls are Shariah review, Shariah audit, Shariah risk management and annual reporting, with AAOIFI and IFSB standards as references.

Worked example

A listed company earns 4% of revenue from conventional bank interest and has interest-bearing debt equal to 40% of total assets. Under the SAC's financial-ratio benchmarks, interest income of 4% is within the 5% tolerance, but debt at 40% exceeds the 33% ceiling. The company fails the quantitative screen and is not Shariah-compliant, regardless of its core business. If it had passed, the 4% non-compliant income would be purified from dividends rather than making the whole holding impermissible.

Traps that cost marks

  • Treating every fixed return as riba. Ijarah sukuk rentals are lease income, not interest.
  • Calling ordinary market risk gharar. Gharar concerns uncertainty in contract terms, not price movements.
  • Assuming regulator approval covers every product. The SAC rules on principles and structures; the institution's committee applies them.
  • Confusing Shariah audit with financial audit - they answer different questions.