IFMP Islamic Finance Certification (IFC), Pakistan cheat sheet

Riba (interest/usury) is prohibited in both its Quranic forms: riba al-nasi'ah (an increment charged for deferment of payment) and riba al-fadl (unequal exchange of identical counter-values in the same genus, e.g., gold for gold, wheat for wheat).

Six ribawi commodities named in hadith are gold, silver, wheat, barley, dates and salt; classical jurists extend the same-genus/equal-quantity rule by analogy (qiyas) to other monetary or staple goods, depending on school.

Gharar (excessive uncertainty) voids a contract when it touches the subject matter, price or delivery so materially that the parties cannot be certain of their obligations; minor incidental uncertainty is tolerated.

Maysir (gambling) and qimar cover any arrangement where a party's gain depends purely on chance and another party's loss; conventional insurance and pure speculation are analysed under this heading.

Prohibited (haram) subject matter includes alcohol, pork, conventional banking/insurance, gambling, adult entertainment and interest-bearing instruments; income from such sources must be purified (cleansed) or avoided.

Five essential contract elements (arkan): offer (ijab) and acceptance (qabul), contracting parties with legal capacity, subject matter (mahal) that exists, is owned and halal, and a valid purpose (maqsad) free of riba/gharar.

Ownership and risk (al-kharaj bil-daman) principle: entitlement to profit follows liability for loss; a financier cannot earn a return without bearing genuine commercial risk.

Sale of what one does not own (bay' ma la yamlik) is prohibited, which is why salam and istisna' are treated as exceptions with specific conditions rather than general rules.

Money (thaman) is treated as a medium of exchange, not a commodity to be rented or traded for a premium; hence cash cannot be leased and currency exchange must be spot (hand-to-hand) when the currencies differ.

Murabaha: cost-plus sale; the institution must own or validly acquire the asset and bear ownership risk before selling at a disclosed mark-up; the mark-up is fixed and does not increase on late payment (a separate ta'zir/charity charge may apply).

Musharakah: profit is shared strictly by pre-agreed ratio, but loss must be shared in proportion to capital contributed; a partner cannot be guaranteed a return.

Mudarabah: rabb al-mal supplies capital, mudarib supplies effort; losses fall on capital unless caused by the mudarib's negligence, breach or misconduct; profit ratio must be a percentage, not a lump sum.

Ijarah: lease of a usufruct for a rent; the lessor retains ownership, bears major maintenance and ownership-related risks, and the lease term/rent must be determined at inception.

Ijarah wa iqtina / ijarah muntahia bittamleek: lease ending in ownership transfer via gift, sale or gradual transfer, structured as a separate unilateral promise (wa'd) rather than a condition embedded in the lease.

Salam: advance payment for a precisely specified fungible good delivered later; requires full price paid at contract, exact specification of quality/quantity and a defined delivery date and place.

Istisna': manufacturing contract for a non-existent, made-to-order asset (e.g., a building or machine); price and specifications are agreed, and payment may be in instalments tied to milestones.

Sukuk are asset-backed or asset-based certificates representing undivided ownership in tangible assets, usufruct or a project; returns derive from the underlying cash flows, not from a loan.

Shariah governance: an independent Shariah Supervisory Board (SSB) issues fatwas, and internal Shariah audit plus periodic review verify that products, contracts and profit allocation comply.

The State Bank of Pakistan (SBP) regulates Islamic banking; the Islamic Banking Department (IBD) was created in 2003 to promote and regulate the sector, and the Shariah Advisory Board (SAB) at SBP advises on Shariah matters.

Islamic Banking Institutions (IBIs) operate under the SBP's Shariah Governance Framework, which requires a Shariah Board at each bank, an executive Shariah compliance function and annual Shariah audit.

The Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 governs Modarabas, which are registered with the Securities and Exchange Commission of Pakistan (SECP) and listed on the Pakistan Stock Exchange.

Takaful in Pakistan is regulated by SECP under the Takaful Rules, 2005 (and subsequent amendments); operators manage a participants' fund, with surplus and deficit handled per the wakala or hybrid wakala-waqf model.

Pakistan's Islamic banking sector operates under the SBP's Minimum Capital Requirements for Islamic banks (Basel-aligned), and IBIs must maintain separate Shariah-compliant books and profit distribution policies.

The SBP's Islamic Export Refinance Scheme (IERS) is a Shariah-compliant refinance facility for exporters, structured on the basis of Islamic modes such as murabaha and istisna'.

Government of Pakistan issues Ijara Sukuk and other sovereign sukuk through the SBP/SECP framework to provide Shariah-compliant instruments for liquidity management.

The Federal Shariat Court's 2022 ruling on riba and the government's subsequent appeals mean the transition to full Islamic banking remains a policy process; candidates should know the FSC judgment date and the government's appeal to the Supreme Court.

Pakistan's accounting and reporting for Islamic financial institutions follows the SBP's instructions and AAOIFI-aligned standards where applicable; profit-sharing investment accounts are treated distinctly from deposits.

Shariah stock screening typically excludes companies whose primary business is haram, and applies financial ratio filters such as interest-bearing debt to total assets, non-compliant income to revenue, and receivables to assets.

Common screening thresholds used by Islamic index providers: interest-bearing debt/assets under 33%, non-compliant income/revenue under 5%, and cash plus receivables/assets under 70%; the exact ratios vary by standard-setter.

Purification (cleansing) of dividend income: the non-compliant income proportion is donated to charity, not retained as profit by the investor.

Takaful models: wakala (operator acts as agent for a fee), mudarabah (operator shares profit with participants) and waqf (participants' contributions form a waqf fund; operator manages it for a fee).

Takaful surplus belongs to participants, not the operator; the operator earns only its agreed wakala fee or mudarabah share, and deficit is covered by an interest-free loan (qard hasan) from the operator if needed.

Sukuk structures include ijarah (lease-based), murabaha (debt-based, tradable only at par before maturity), musharakah, mudarabah and wakala; ijarah sukuk are the most tradable because they represent tangible ownership.

Sukuk al-ijarah: the issuer sells assets to an SPV, leases them back, and sukuk holders receive rentals; at maturity the SPV sells the assets back to the originator at a pre-agreed price.

Shariah-compliant hedging uses forward sale (salam), wa'd-based structures, or parallel contracts; conventional options and futures are generally prohibited due to gharar and maysir.

Zakat on financial assets is generally 2.5% of zakatable wealth held for one lunar year above the nisab threshold (85g gold or 595g silver); Islamic banks often deduct zakat on investment accounts at the account holder's instruction.