NIBAF Islamic Banking Certificate cheat sheet

Shariah: Islamic law derived from Quran, Sunnah, ijma (consensus), and qiyas (analogy).

Riba: any guaranteed increase on a loan of money or commodity; prohibited in all forms.

Gharar: excessive uncertainty in contract terms (e.g., price, delivery, subject matter); invalidates contracts.

Maysir: gambling or speculative gain dependent on chance; prohibited.

Halal: permissible activities and assets; haram: prohibited (e.g., alcohol, pork, conventional insurance).

Maqasid al-Shariah: objectives of Islamic law-preservation of religion, life, intellect, lineage, wealth.

Islamic finance principles: risk-sharing, asset-backing, no interest, ethical screening, and profit-loss sharing.

Sources of Shariah: primary (Quran, Sunnah) and secondary (ijma, qiyas, ijtihad, istihsan, maslahah).

Mudarabah: profit-sharing contract between capital provider (rabb al-mal) and entrepreneur (mudarib); losses borne by capital provider unless negligence.

Musharakah: joint partnership with shared capital, profit, and loss; losses shared pro rata to capital.

Murabaha: cost-plus sale with disclosed markup; payment deferred; ownership and risk must pass through bank.

Ijara: leasing contract; bank owns asset and leases usufruct to customer for rental; ownership may transfer via separate gift (ijara wa iqtina).

Salam: forward sale with full payment at contract for specified fungible goods delivered later.

Istisna: manufacturing contract with payment in stages; subject matter must be specified.

Qard Hasan: benevolent loan with no interest; only principal repayment required.

Wadiah: safekeeping contract; bank may guarantee principal but cannot promise returns.

Murabaha financing: bank purchases asset, sells to customer at cost plus profit; payment lump sum or installments.

Ijara financing: bank leases asset to customer; rental payments; ownership remains with bank unless transferred.

Musharakah Mutanaqisah: diminishing partnership; customer gradually buys bank's share; rental decreases as ownership increases.

Salam financing: bank pays in advance for goods; used in agriculture and manufacturing.

Istisna financing: bank funds manufacturing; can be combined with parallel istisna.

Shirkah: partnership; can be musharakah (capital) or mudarabah (capital and effort).

Contract conditions: offer and acceptance (ijab and qabul), subject matter must be halal, price certain, and asset owned by seller.

Penalty clause: late payment penalty may be donated to charity; cannot be treated as income.

Sukuk: asset-backed securities representing ownership in tangible assets or usufruct; returns from underlying assets.

Sukuk types: ijara (lease-based), murabaha (debt-based), musharakah, mudarabah, salam, istisna.

Shariah-compliant investment: avoid riba, gharar, maysir; screen out haram sectors (alcohol, gambling, conventional finance).

Treasury operations: manage liquidity via commodity murabaha, Islamic interbank deposits, and sukuk.

Profit rate: determined by market forces and asset performance; cannot be fixed in advance for mudarabah.

Zakat: 2.5% on qualifying wealth (nisab) held for one lunar year; banks may facilitate zakat payment.

Investment account holders (IAH): share profits and losses; no guaranteed returns; bank acts as mudarib.

Islamic treasury instruments: central bank sukuk, Islamic repo (not permissible), and commodity murabaha.

Credit risk: counterparty default; mitigated by collateral, guarantees, and credit analysis.

Market risk: price, rate, and currency fluctuations; Islamic banks face benchmark risk due to profit rate benchmarking.

Liquidity risk: shortage of liquid assets; Islamic banks have limited access to conventional money markets.

Operational risk: process failures, fraud, Shariah non-compliance; mitigated by internal controls and Shariah audit.

Shariah risk: risk of non-compliance with Shariah rules; leads to reputational and financial loss.

Rate of return risk: mismatch between asset and liability profit rates; affects IAH returns.

Risk mitigation: diversification, hedging (permissible via wa'd, murabaha, salam), and capital adequacy.

Islamic Financial Services Board (IFSB) provides risk management standards.

AAOIFI standards: accounting, auditing, governance, ethics, and Shariah standards for Islamic financial institutions.

Mudarabah accounting: profit allocated between bank and IAH; losses borne by capital provider.

Murabaha accounting: profit recognized at sale; deferred profit recognized over installment period.

Ijara accounting: rental income recognized over lease term; asset depreciation recorded.

Zakat and charity: late payment penalties and prohibited income are donated to charity; not bank income.

Shariah Supervisory Board (SSB): independent body of scholars; reviews and approves products and transactions.

Shariah audit: internal audit to ensure compliance with Shariah rulings; reports to SSB.

Financial reporting: balance sheet, income statement, cash flow, and statement of changes in equity; disclose Shariah-compliant status.

IFSB: issues prudential standards for Islamic financial institutions (capital adequacy, risk management, governance).

AAOIFI: issues Shariah and accounting standards; widely adopted in many jurisdictions.

Basel III: capital and liquidity standards; adapted for Islamic banks by IFSB.

National regulators: central banks and securities commissions supervise Islamic banks; may have dedicated Islamic finance departments.

Legal framework: Islamic banking laws may be separate or integrated; contract law must recognize Shariah principles.

Consumer protection: transparency, fair treatment, and dispute resolution mechanisms.

Anti-money laundering (AML) and counter-terrorism financing (CTF): apply to Islamic banks; enhanced due diligence for high-risk customers.

Shariah governance framework: requires SSB, Shariah review, audit, and risk management.

Ethical conduct: honesty, transparency, fairness, and avoidance of exploitation.

Customer service: clear communication of Shariah-compliant products; avoid misrepresentation.

Dispute resolution: internal complaints, mediation, and arbitration; Shariah-compliant alternatives.

Confidentiality: protect customer information; comply with data protection laws.

Financial inclusion: Islamic microfinance, qard hasan, and zakat distribution.

Practical application: product structuring requires Shariah approval, legal documentation, and operational processes.

Training: staff must understand Shariah principles and product features.

Customer onboarding: assess risk profile, Shariah preferences, and suitability.