Islamic Finance MCQ

1. In which year did Singapore launch the first full-fledged Islamic bank?

A. 2010
B. 2008
C. 2007
D. 2005

2. Which of the following is NOT a global center for Islamic finance?

A. Singapore
B. London
C. Dubai
D. Kuala Lumpur

3. Which of the following regarding Islamic finance and conventional finance is NOT true?

A. Islamic finance is a melding and balancing of Islam and conventional finance concepts
B. Conventional finance structures are simply reverse-engineered to bring them into compliance
with Islamic legal principles.
C. The only difference between Islamic finance and conventional finance is the prohibition of riba.
D. Islamic finance is some markets are less strict adherence to Islamic principles and more
similarity to conventional finance are often preferred.

4. If the clients of an Islamic institution want to finance the purchase of homes in the UK under the
Murabahah facility, which of the following is Shariah compliant/complain?

A. The facility involves the purchase of a designated residence at a specified price (including a
profit component) by the British Bank which, in turn, resells the property to the clients, with the
same specific price that the bank has paid, to be paid in instalments by the clients over a period
of five years.
B. The facility involves the purchase of a designated residence at a specified price by the British
bank which, in turn, resells the property to the clients, with the same specific price that the bank
has paid, to be paid in instalments by the clients over a period of five years at an interest of
3.98% per annum.
C. The facility involves the purchase of a designated residence at a specified price by the British
bank which, in turn, rents the property to the clients, until the total rental price equals to the
amount that the bank has paid, and after which, the residence ownership will be transferred to
the clients.
D. The facility involves the purchase of a designated residence at a specified price by the British
bank which, in turn, resells the property to the clients, with the purchase price (including a profit
component) to be paid in instalments by the clients over a period of five years.

5. Which of the following statements consider Tawarruq are correct?

i. Tawarruq is also known as reverse commodity murabahah

 ii. Tawarruq is an effective framework that has developed by Islamic finance to replicate
shorter-term cash loans, such as for financing working capital
iii. Monetization phase in Tawarruq is where the customer can sell the commodities back to the
first broker to cash in the money
iv. Under Tawarruq facility, the financial institution will make a profit on the sale of the
commodities, to be paid instantly by the customer; and the Brokers have each earned a
commission on the sales of the commodities.

A. Only ii
B. Both i and ii
C. Both ii and iii
D. ii, iii, and iv

6. During the duration of Ijara, the ownership of the leased asset lies in the hand of:

A. The asset vendor

B. The customer who leases the asset
C. The financial institution that provides funding for the asset vendor
D. The financial institution that lease out the asset

7. Sudanese Islamic bank invested into a grocery store for a one month period, applying a Musharaka
contract. The investment contributions of the bank and the grocery store partner with the net profit
are given as follow:

Sudanese bank investment contributions ($)

Bank Grocery Store
Investment 735,000 690,000

If the net profit for the month is $450,000, what will be the profit shared by the grocery store?

A. 232,105
B. 217,895
C. 19,342
D. 18,158

8. The client wants to purchase a house for which he does not have adequate funds. He approached
the financier who agrees to participate with him in purchasing the required house. 20% of the price
is paid by the client and 80% of the price by the financier. Thus the financier owns 80% of the house
while the client owns 20%. After purchasing the property jointly, the client uses the house for his
residential requirements and pays rent to the financier for using his share in the property. At the
same time the share of the financier is further divided into eight equal units, each unit representing
10% ownership of the house. The client promises the financier that he will purchase say one unit
every three months. Accordingly, after the first term of the three months he purchases one unit of
the share of the financier by paying one-tenth of the house price. This reduces the share of the
financier from 80% to 70%. Hence, the rent payable to the financier is also reduced to that extent.
At the end of the second term, the client purchases another unit thereby increasing his share in the
property to 40% and reducing the share of the financier to 60% and consequentially reducing the
rent to that proportion. This process goes on in the same fashion until, after the end of two years,
 the client purchases the whole share of the financier thereby reducing the share of the financier to
zero and increasing his own share to 100%. This arrangement allows the financier to claim rent
according to his proportion of ownership in the property and, at the same time, allows him
periodical return of a part of his principal through the purchases of the units of his share of the
property.

A. Ijara wa Iqtina
B. Diminishing Musharaka
C. Diminishing Mudarabah
D. Muradaba

9. Sukuk is an Arabic name which stands for

A. Financial certificates
B. Financial liabilities
C. Financial assets
D. Financial loans

10. Takaful is a means of providing risk cover against catastrophic loss or damage to life or property,
thus is often described simply as Islamic insurance; however, it is different from insurance in that:

A. Conventional insurance essentially involves gambling customer betting on the payment by the
insurance company on a loss will exceed the premium payments made by the customer to
purchase the insurance and insurance company betting the opposite a prohibited activity
under Shariah.
B. In conventional insurance, there is too much inherent uncertainty to be allowed under Shariah:
whether the insurance company will ever be called upon to pay out to a customer, the timing of
any such payout, and how much the insurance company will ever be called upon to pay out
C. Conventional insurance stands in sharp contrast to the strong preference in Islamic transactions
for as much mutuality and sharing of profit/loss and risk, as possible, rather than seeking to
transfer all the risk of loss from the customer to the insurance company, albeit in exchange for
payment of premiums by the customer.
D. All of the above.

Answers:
1:C 2:A 3:C 4:D 5:B 6:D 7:B 8:C 9:A 10:D