MNU BUSINESS SCHOOL

ISLAMIC BANKING AND FINANCE

ACC 305
Final Examination Paper
xx November 2014

Time allowed:

3 hour 00 minutes

Total Number of pages:

FIVE Pages including the cover sheet

General Instructions:
(Specific instructions by
subject Lecturer - )

1. This paper has TWO SECTIONS:

Section A: Answer THREE
questions from this section.
QUESTION
NO.
1
IS
COMPULSORY
Section B: Answer ANY THREE
questions from this section.
2. Read the questions carefully before
answering.
3. Clearly write the question numbers and
number of sub-parts of the questions
attempted.
4. Your hand writing should be clear and
legible.
5. This paper carries 100 Marks.

THE EXAMINATION PAPER MUST BE COLLECTED IN WITH THE ANSWER SCRIPT

Final examination-(ACC 305)

2014

SECTION A 40 marks
Answer three questions, question 1 is compulsory

1. The Quran forbids the charging of riba on money lent. The Shariah disallows riba and there
is now a general consensus among Muslim economists that riba is not restricted to usury but
encompasses interest as well. As revealed in Surah Ar-Rum verse 39,

And whatever you give for interest to increase within the wealth of people will not increase with
Allah. But what you give in zakah, desiring the countenance of Allah - those are the multipliers.
(Sahih International)

a) Explain the difference between (i) riba al-nasiah and (ii) riba al-fadl.

(8 marks)

b) What are the misconceptions about the present day interest? Provide arguments to

justify the misconceptions being tantamount to Riba.

(12 marks)

2. Shariah requires the subject matter to be in existence at the time of sale. However, two
contracts are exempted from this rule. Examine the two (2) contracts.
(10 marks)

3. The Islamic economic system relies upon vibrant markets for equity-based securities.
However, a Shariah-based formal model for a stock market is yet to be formulated due to
some major structural issues. Discuss these issues.

(10 marks)

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Final examination-(ACC 305)

2014

4. The need for accounting records as means for trust building is emphasized in the Quran;

O you who have believed, when you contract a debt for a specified term, write it down. And let a scribe write [it]
between you in justice. Let no scribe refuse to write as Allah has taught him. So let him write and let the one who
has the obligation dictate. And let him fear Allah, his Lord, and not leave anything out of it. But if the one who has
the obligation is of limited understanding or weak or unable to dictate himself, then let his guardian dictate in
justice. And bring to witness two witnesses from among your men. And if there are not two men [available], then a
man and two women from those whom you accept as witnesses - so that if one of the women errs, then the other
can remind her. And let not the witnesses refuse when they are called upon. And do not be [too] weary to write it,
whether it is small or large, for its [specified] term. That is more just in the sight of Allah and stronger as evidence
and more likely to prevent doubt between you, except when it is an immediate transaction which you conduct
among yourselves. For [then] there is no blame upon you if you do not write it. And take witnesses when you
conclude a contract. Let no scribe be harmed or any witness. For if you do so, indeed, it is [grave] disobedience in
you. And fear Allah. And Allah teaches you. And Allah is Knowing of all things. (2:282).

What are the broad objectives of Financial Accounting and Reporting for Islamic Financial
Institutions?

(10 marks)
SECTION B 60 marks
Answer any 3 questions

1. Same as conventional banks, but different in principles No interest and No pre-determined

return, an Islamic Bank also accepts deposits from the public and utilises the same by lending
it to those who seek financing for various purposes.
a) Identify and explain two (2) contracts an Islamic Bank may use for their current and
saving account.

(10 marks)

b) Identify and explain two (2) contracts an Islamic Bank may use for financing their funds.
(10 marks)
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Final examination-(ACC 305)

2014

2. Fenaka Corporation requires 80 generators (40Kws) to be installed at different parts of the

Maldives to provide uninterrupted power to the population of Maldives. It is estimated that
the generators would cost around 10 million United States Dollars. Ministry of Finance
informed Fenaka of its unwillingness to provide any financing due to its commitment to civil
service commission every year. Banks are also unwilling to lend as Fenaka lacks in suitable
assets as collateral. However, the banks are ready to lend to Fenaka Corporation at a 25%
interest rate. The MD, however, feels that the rates charged by the banks are exorbitant and
exploitative based on the situation of Fenaka. The MD of Fenaka was informed that Islamic
finance could be able to give a solution to the matter by issuing a Sukuk. The MD has asked
you to structure a Sukuk that would result in acquiring the generators. He also informs you
that his cost of funding the generators should not exceed 10% of the cost.

a. From your knowledge, structure a Sukuk that would best cater to the situation of
Fenaka Corporation. You are required to explain the structure of Sukuk as well.
(15 marks)
b. What factors impede the growth of Sukuk markets?

(5 marks)

3. Currently there are various takaful business models that are being used in the various
jurisdictions throughout the world, namely:
The Mudharaba Model
The Wakalah Model
The Hybrid Model
The Waqf Model
a. Explain the modus operandi of a pure Mudharaba model for providing takaful services.
(15 Marks)
b. What are the key differences between conventional insurance and takaful?
(5 Marks)

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Final examination-(ACC 305)

2014

4. Tawwaruq is deemed as a controversial debt based financing instrument in Islamic finance.

Tawwaruq is a financing product that is cited as a classic case of hiyal, or legal tricks, but has
been permitted by mainstream scholars under certain conditions.

a. Explain the concept of Tawwaruq practiced by contemporary Islamic banks.

(12 marks)
b. What are the general rules for legitimising Tawwaruq as proposed by Scholars?
(8 marks)

END of Paper

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