CIFE Islamic Capital Markets — Questions and Answers
Question 1: What are the main types of Sukuk structures used in the UAE capital markets?
- Only one type of Sukuk exists
- Ijara Sukuk, Mudaraba Sukuk, Musharaka Sukuk, Murabaha Sukuk, and Wakala Sukuk among others (Correct answer)
- Sukuk are only issued by governments
- Sukuk cannot be traded on secondary markets
Correct answer: Ijara Sukuk, Mudaraba Sukuk, Musharaka Sukuk, Murabaha Sukuk, and Wakala Sukuk among others
The UAE market uses multiple Sukuk structures: Ijara (lease-based), Mudaraba (profit-sharing), Musharaka (partnership), Murabaha (cost-plus), and Wakala (agency), each based on different underlying Islamic contracts.
Question 2: What is the role of the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions)?
- It is a government regulator
- An international standard-setting body that develops Sharia, accounting, auditing, governance, and ethics standards for Islamic financial institutions (Correct answer)
- It provides Islamic banking software
- It manages Islamic investment funds
Correct answer: An international standard-setting body that develops Sharia, accounting, auditing, governance, and ethics standards for Islamic financial institutions
AAOIFI is an international autonomous body that develops and publishes Sharia standards, accounting standards, auditing standards, governance standards, and ethics standards for the Islamic financial services industry.
Question 3: What Sharia screening criteria must be met for stocks to be included in Islamic indices?
- Only the company's sector matters
- Both qualitative screening (permissible business activity) and quantitative screening (debt-to-assets, interest income, and liquid assets ratios below specified thresholds) (Correct answer)
- Companies must be in Muslim-majority countries
- Only market capitalization matters
Correct answer: Both qualitative screening (permissible business activity) and quantitative screening (debt-to-assets, interest income, and liquid assets ratios below specified thresholds)
Islamic index screening requires: qualitative checks (no haram primary business), plus quantitative thresholds typically requiring total debt/assets <33%, interest income/revenue <5%, and cash+receivables/assets <33%.
Question 4: What is the concept of purification (Tazkiyah) for Islamic investment returns?
- A spiritual practice with no financial relevance
- The process of cleansing investment returns by donating the proportion of income derived from non-compliant activities to charity (Correct answer)
- Converting conventional investments to Islamic ones
- Paying taxes on investment income
Correct answer: The process of cleansing investment returns by donating the proportion of income derived from non-compliant activities to charity
Income purification requires investors to calculate and donate to charity the portion of returns attributable to non-compliant activities (such as interest income) of companies in their portfolios, purifying their overall returns.
Question 5: What is the S&P/Hawkamah ESG Pan Arab Index and its relevance to Islamic finance?
- It has no connection to Islamic finance
- It demonstrates the overlap between ESG (Environmental, Social, Governance) investing and Islamic finance principles in the Arab region (Correct answer)
- It is a pure Islamic index
- It only tracks oil companies
Correct answer: It demonstrates the overlap between ESG (Environmental, Social, Governance) investing and Islamic finance principles in the Arab region
This index highlights the natural alignment between ESG investing and Islamic finance — both emphasize ethical business practices, social responsibility, and good governance, making them complementary approaches.
Question 6: What is the Islamic interbank money market and how does it function?
- It uses LIBOR for pricing
- It uses Sharia-compliant instruments like Mudaraba interbank deposits, Wakala placements, and commodity Murabaha for short-term liquidity management between Islamic banks (Correct answer)
- It operates identically to conventional money markets
- Islamic banks do not participate in interbank markets
Correct answer: It uses Sharia-compliant instruments like Mudaraba interbank deposits, Wakala placements, and commodity Murabaha for short-term liquidity management between Islamic banks
The Islamic interbank market uses Sharia-compliant instruments for short-term liquidity management: Mudaraba deposits, Wakala investments, and commodity Murabaha transactions replace interest-bearing conventional instruments.
CIFE Islamic Capital Markets
What are the main types of Sukuk structures used in the UAE capital markets?