CIFE Islamic Banking Products 2 — Questions and Answers
Question 1: What is Istisna'a financing used for in Islamic banking?
- Only for real estate purchases
- Manufacturing or construction financing where the bank commissions the creation of an asset to customer specifications with deferred delivery and payment (Correct answer)
- Short-term trade financing only
- Personal consumer financing
Correct answer: Manufacturing or construction financing where the bank commissions the creation of an asset to customer specifications with deferred delivery and payment
Istisna'a is used for financing the manufacture or construction of assets to specific requirements. The bank commissions the construction and delivers the finished asset to the customer, with flexible payment arrangements.
Question 2: What is Salam (forward sale) and what conditions make it Sharia-compliant?
- Any forward contract is Salam
- An advance payment sale where full price is paid upfront for delivery of specified goods at a future date, with quantity, quality, and delivery date precisely defined (Correct answer)
- A sale on credit with deferred payment
- A spot sale of existing goods
Correct answer: An advance payment sale where full price is paid upfront for delivery of specified goods at a future date, with quantity, quality, and delivery date precisely defined
Salam requires full upfront payment for goods to be delivered later, with precise specification of quantity, quality, and delivery date to minimize gharar. It is an exception to the general rule against selling what one does not possess.
Question 3: What is Wakala (agency) in Islamic banking?
- A type of partnership
- An agency contract where one party (wakil/agent) acts on behalf of another (muwakkil/principal) for a fee or commission (Correct answer)
- A profit-sharing investment
- A sale contract with markup
Correct answer: An agency contract where one party (wakil/agent) acts on behalf of another (muwakkil/principal) for a fee or commission
Wakala is an agency arrangement where the principal (muwakkil) appoints an agent (wakil) to conduct specific transactions on their behalf, typically for a fixed fee, commonly used in investment management.
Question 4: What is an Islamic credit card and how does it work?
- It charges interest like conventional cards
- It uses structures like Bai al-Inah, Tawarruq, or Ujrah where fees replace interest charges, with a Sharia-compliant fee structure (Correct answer)
- Islamic credit cards do not exist
- It only allows cash payments
Correct answer: It uses structures like Bai al-Inah, Tawarruq, or Ujrah where fees replace interest charges, with a Sharia-compliant fee structure
Islamic credit cards use various Sharia-compliant structures to replace interest: Bai al-Inah (sale and buyback), Tawarruq (commodity murabaha), or Ujrah (fee-based), ensuring no riba is charged on outstanding balances.
Question 5: What is the concept of Islamic windows in conventional banks?
- Physical windows in bank branches
- Dedicated departments within conventional banks that offer Sharia-compliant products, with segregated funds and independent Sharia oversight (Correct answer)
- Any conventional bank product labeled as Islamic
- Online-only Islamic banking services
Correct answer: Dedicated departments within conventional banks that offer Sharia-compliant products, with segregated funds and independent Sharia oversight
Islamic windows are dedicated units within conventional banks that offer Sharia-compliant products. They require fund segregation from conventional operations, independent Sharia board oversight, and separate accounting.
Question 6: What is Diminishing Musharaka and how is it used for home financing?
- A standard mortgage with declining balance
- A joint ownership arrangement where the bank's share is gradually bought by the customer through rental payments plus purchase installments until full ownership transfers (Correct answer)
- A lease-only arrangement
- A fixed-rate financing product
Correct answer: A joint ownership arrangement where the bank's share is gradually bought by the customer through rental payments plus purchase installments until full ownership transfers
Diminishing Musharaka for home financing involves the bank and customer jointly purchasing a property. The customer makes rental payments on the bank's share while gradually buying the bank's portion until achieving full ownership.
CIFE Islamic Banking Products 2
What is Istisna'a financing used for in Islamic banking?