Foundations of Islamic Finance and Shariah
This domain tests whether you can derive a structure from Shariah sources rather than from banking habit. Expect questions on the sources of law, the core prohibitions, and the asset-and-risk-sharing logic that separates Islamic from conventional finance.
Sources and method
Qur'an and Sunnah are primary; ijma (consensus), qiyas (analogy) and ijtihad resolve new cases. A fatwa is a reasoned Shariah opinion, not a regulation - a product is compliant only when both the contract and its documentation satisfy the Shariah Board. Riba is categorically prohibited (Qur'an 2:275–279); gharar is prohibited when excessive in a commutative contract; maisir and qimar cover gambling and pure speculation.
What makes a structure compliant
Money is potential capital, not a commodity traded for a price. Each financing must connect to a real asset, usufruct or service; return must come from trade, lease or profit-and-loss sharing; risk must be shared; and the underlying activity must be halal. Guaranteed principal plus a guaranteed increment on a loan is riba whatever the label.
Worked example
A customer deposits PKR 1,000,000 at a conventional bank at 10% for a year. The bank owes 1,100,000 regardless of what it earns - the stipulated excess is riba. The same customer places the money in a mudarabah-based savings account at an indicative 9%. The bank pools it in halal assets and shares realised profit, say 60% to depositors. If the pool earns 8%, return is calculated on 8%; if it earns nothing, nothing is due; if it loses, the loss falls on the depositor's capital unless the bank was negligent or breached the contract.
Traps
Markup is not interest: murabaha markup is the price of an asset the bank owned and risked, and it cannot be raised on rescheduling. Late-payment penalties go to charity, never to income. Do not treat every profit as riba, and do not accept that a compliant name proves a compliant cash flow.