Islamic Finance Regulations Flashcards

Which body serves as the supreme Sharia authority for Islamic financial institutions operating in the UAE's onshore market?

Answer: Higher Sharia Authority (HSA) at the CBUAE

The Higher Sharia Authority (HSA), established under the CBUAE, is the supreme Sharia authority whose fatawa are binding on all Islamic financial institutions in the UAE's onshore market.

What is the primary prohibition in Islamic finance that fundamentally distinguishes it from conventional finance?

Answer: Charging or paying interest (Riba)

Riba (interest) is categorically prohibited in Islamic finance; all financing must instead be structured around profit-sharing, trade, or leasing arrangements.

Under UAE regulations, which Sharia-compliant contract involves a bank purchasing an asset and reselling it to the client at a disclosed profit margin?

Answer: Murabaha

Murabaha is a cost-plus financing contract where the bank acquires the asset and resells it to the customer at a transparent markup, replacing interest with a permissible trade profit.

What is a Sukuk in the context of UAE capital markets regulation?

Answer: A Sharia-compliant certificate representing proportional ownership in an underlying asset or pool

Sukuk are Islamic investment certificates representing undivided ownership in a tangible asset, usufruct, or project, structured to avoid interest while providing returns linked to asset performance.

Which international organization specifically develops accounting, auditing, governance, and Sharia standards for Islamic financial institutions?

Answer: Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI)

AAOIFI develops and issues standards specifically designed for Islamic financial institutions, covering accounting, auditing, ethics, governance, and Sharia compliance.

Under UAE regulations, which of the following best describes Takaful?

Answer: A Sharia-compliant mutual insurance mechanism based on shared contribution and collective risk-bearing

Takaful is the Islamic alternative to conventional insurance, where participants contribute to a mutual fund pool and collectively share risk on the principle of solidarity and cooperation rather than commercial risk transfer.

Which UAE regulatory authority primarily supervises Takaful operators in the onshore UAE market following the 2020 regulatory restructuring?

Answer: Central Bank of the UAE (CBUAE), which absorbed the former Insurance Authority

The former Insurance Authority was integrated into the CBUAE under Federal Decree-Law No. 25 of 2020, so the CBUAE now supervises Takaful operators in the onshore market.