CIFE Murabaha & Ijara 1

Question 1

What is the definition of 'Murabaha' in Islamic finance?

Accepted Answer

A cost-plus-profit sale where the seller discloses the original cost and adds an agreed profit margin, with payment typically deferred

Answer

Murabaha is a Shariah-compliant sale where the seller buys an asset, discloses its cost to the buyer, and adds a mutually agreed profit margin; the buyer pays the total price, often in instalments.

Question 2

In a Murabaha home finance transaction, who must own the property before selling it to the client?

Accepted Answer

The Islamic bank must first purchase the property and take legal ownership before selling it to the client

Answer

For a valid Murabaha, the bank must genuinely purchase and own the asset before on-selling it to the client; this establishes the bank's risk and ownership, justifying its profit margin.

Question 3

What is 'Tawarruq' (Commodity Murabaha) and how is it used in Islamic banking?

Accepted Answer

A monetisation technique where a client buys a commodity on credit from the bank and sells it in the spot market for cash to obtain liquidity

Answer

Tawarruq involves a client buying a commodity (e.g., metals) on deferred payment from an Islamic bank and immediately selling it to a third party for spot cash, effectively generating liquidity while maintaining Shariah form.

Question 4

What distinguishes 'Murabaha' from a conventional loan in terms of Shariah compliance?

Accepted Answer

Murabaha involves a real asset purchase and sale with a disclosed profit margin, whereas a conventional loan charges interest on money lent

Answer

Murabaha's compliance rests on the real asset transaction and the bank's genuine ownership and risk exposure; a conventional loan is simply money lent for interest, lacking the required underlying asset.

Question 5

In a Murabaha contract, what happens if the client defaults on deferred instalments?

Accepted Answer

The bank may impose penalties only if they are donated to charity (not retained as income), and may restructure but cannot charge compound interest

Answer

Shariah prohibits charging additional interest on late payments; penalties may be set to deter default but must be directed to charity rather than retained as bank income to avoid Riba.

CIFE Islamic Finance Practice Test

CIFE Islamic Finance Practice Test

CIFE Murabaha & Ijara 1