CME-1 Islamic Finance & CMA Regulations

Question 1

What is 'riba' and why is it prohibited in Islamic finance?

Accepted Answer

Interest or any predetermined return on a loan, prohibited as it is considered exploitative and unjust in Islamic law

Answer

Riba refers to interest or any unjust increase in exchange, prohibited in Islamic law because it creates guaranteed returns for the lender without sharing in genuine economic risk.

Question 2

What does 'Shariah compliance' mean for a Saudi capital market product?

Accepted Answer

Structured to comply with Islamic law principles: no riba, gharar, maysir, and backed by permissible activities

Answer

Shariah compliance requires that financial products avoid interest (riba), excessive uncertainty (gharar), gambling (maysir), and must be backed by permissible (halal) underlying assets or activities.

Question 3

What is a 'Shariah Supervisory Board' in the context of Islamic financial institutions?

Accepted Answer

An independent body of Islamic scholars that reviews and certifies a firm's products and activities as Shariah-compliant

Answer

A Shariah Supervisory Board consists of qualified Islamic scholars who provide fatwas (religious rulings) certifying that products, contracts, and activities comply with Islamic law.

Question 4

What is 'murabaha' in Islamic finance?

Accepted Answer

A cost-plus-profit sale where the seller discloses the cost and an agreed profit margin to the buyer

Answer

Murabaha is a sale where the seller discloses the original cost and adds an agreed profit margin; widely used in trade finance and asset financing as a Shariah-compliant alternative to loans.

Question 5

What is 'musharaka' in Islamic finance?

Accepted Answer

A joint venture or partnership where all parties contribute capital and share profit and loss proportionally

Answer

Musharaka is a partnership where all partners contribute capital, share in profits according to agreed ratios, and bear losses proportional to their capital contribution.

CME-1 Practice Test

CME-1 Practice Test

CME-1 Islamic Finance & CMA Regulations