CIFE Islamic Finance Principles & Shariah 2 — Questions and Answers
Question 1: What is 'Mudarabah' in Islamic finance?
- A profit-sharing partnership where one party provides capital (Rabb al-Mal) and the other provides labour/expertise (Mudarib), sharing profits by a pre-agreed ratio while losses fall on the capital provider (Correct answer)
- A sale on deferred payment terms
- A leasing arrangement for fixed assets
- A joint venture where both parties provide capital equally
Correct answer: A profit-sharing partnership where one party provides capital (Rabb al-Mal) and the other provides labour/expertise (Mudarib), sharing profits by a pre-agreed ratio while losses fall on the capital provider
Mudarabah is an equity-based partnership: the capital provider funds the venture while the entrepreneur manages it, sharing pre-agreed profits; financial losses (unless due to negligence) are borne by the capital provider.
Question 2: What distinguishes 'Musharakah' from 'Mudarabah'?
- In Musharakah all partners contribute capital and share both profits and losses proportionally, whereas in Mudarabah only one party provides capital (Correct answer)
- Musharakah prohibits profit sharing
- Mudarabah requires all partners to provide capital
- Musharakah is used only for real estate
Correct answer: In Musharakah all partners contribute capital and share both profits and losses proportionally, whereas in Mudarabah only one party provides capital
Musharakah is a full partnership where all parties invest capital and share profits and losses; Mudarabah involves only one capital-contributing party while the other contributes labour/expertise only.
Question 3: What is 'Qard Hasan' in Islamic finance?
- A benevolent interest-free loan where only the principal is repaid, typically used for social welfare purposes (Correct answer)
- A profit-sharing loan
- A leasing contract for equipment
- A fixed-income bond alternative
Correct answer: A benevolent interest-free loan where only the principal is repaid, typically used for social welfare purposes
Qard Hasan is a loan extended purely as an act of kindness or charity without any interest; the borrower repays only the principal amount, making it a social welfare instrument endorsed by Islamic ethics.
Question 4: Which concept in Islamic finance refers to money being only a medium of exchange with no intrinsic time value?
- Time value of money prohibition: money has no intrinsic value over time in Islam; only real assets and labour create value (Correct answer)
- Principle of Takaful
- Concept of Zakat
- Principle of Waqf
Correct answer: Time value of money prohibition: money has no intrinsic value over time in Islam; only real assets and labour create value
Islam rejects the conventional concept that money grows over time merely by waiting; value must be created through real assets, trade, or productive labour—not simply from the passage of time.
Question 5: What is 'Waqf' in Islamic finance and social welfare?
- A perpetual charitable endowment where an asset is dedicated in perpetuity for a specified charitable or religious purpose, generating ongoing social benefit (Correct answer)
- A temporary loan to the government
- A form of Islamic insurance
- A type of Sukuk bond
Correct answer: A perpetual charitable endowment where an asset is dedicated in perpetuity for a specified charitable or religious purpose, generating ongoing social benefit
Waqf is an Islamic charitable endowment where a donor permanently dedicates an asset (land, building, or cash) for charitable purposes; the asset cannot be sold or transferred, generating sustainable community benefit.
Question 6: In Islamic finance, what is the significance of 'Maqasid al-Shariah' (Objectives of Islamic Law)?
- It provides the overarching framework of preserving religion, life, intellect, lineage, and wealth, guiding the ethical design of Islamic financial products (Correct answer)
- It refers to profit distribution rules only
- It is the Arabic term for the annual general meeting of shareholders
- It is a type of structured deposit product
Correct answer: It provides the overarching framework of preserving religion, life, intellect, lineage, and wealth, guiding the ethical design of Islamic financial products
Maqasid al-Shariah defines the five essential aims of Islamic law; Islamic finance products must serve these higher objectives—particularly preservation of wealth—rather than exploit or harm society.
CIFE Islamic Finance Principles & Shariah 2
What is 'Mudarabah' in Islamic finance?