JAIBP Islamic Finance (Specialization) Syllabus

In Ijarah, who bears the risk of asset destruction and major maintenance?

The lessor (owner). Because the bank retains ownership, it bears ownership risks, major/structural maintenance and loss; the lessee handles only routine operating maintenance.

How does Ijarah differ from a conventional finance lease regarding rent during non-availability?

In Ijarah, rent cannot be charged if the asset is non-functional/unavailable for use, and rent starts only after delivery of usable asset — unlike conventional leases that may charge from contract signing.

Under what contract are most Islamic bank deposit (savings/investment) accounts structured?

Investment deposits are typically structured on Mudarabah (depositor = Rabb-ul-Maal, bank = Mudarib). Current accounts are based on Qard (loan) where principal is guaranteed but no return is paid.

What is the 'pool' in Islamic bank pool management?

A pool is a fund where depositors' Mudarabah investments and (often) the bank's own equity are commingled and deployed into Shariah-compliant assets; profits are calculated and distributed from the pool.

Define the Profit Sharing Ratio (PSR) and weightages in pool management.

PSR is the agreed ratio splitting pool profit between the bank (Mudarib) and depositors (Rabb-ul-Maal). Weightages then allocate the depositors' share among different deposit categories based on tenor and amount.

What is a Hiba (gift) in the context of Islamic deposits?

Hiba is a voluntary, non-contractual gift the bank may give to current account or low-return depositors. It cannot be pre-agreed or guaranteed, otherwise it becomes Riba.

What are PER and IRR reserves in Islamic banking pools?

PER (Profit Equalization Reserve) smooths returns to depositors across periods; IRR (Investment Risk Reserve) is set aside from depositors' profit to cushion future investment losses. Both protect depositors from volatility.

Which contract is commonly used for Islamic consumer auto financing in Pakistan?

Ijarah (lease ending in ownership) or Diminishing Musharakah. The bank owns the vehicle and leases it to the customer, transferring ownership at the end.

Which contract is commonly used for Islamic home financing in Pakistan?

Diminishing Musharakah, combining co-ownership (Shirkat-ul-Milk), Ijarah (rent on bank's share), and a unilateral purchase undertaking by the customer.

How is working capital / inventory financing typically done in Islamic corporate banking?

Through Murabaha (cost-plus purchase of goods for the client), Salam (for agricultural commodities), or Istisna (for manufacturing). Running finance needs may use Musharakah or Musawamah.

Define Sukuk and how they differ from conventional bonds.

Sukuk are Shariah-compliant certificates representing undivided ownership in tangible assets, usufructs or projects. Unlike bonds (debt paying interest), Sukuk holders own assets and receive returns from asset performance, not interest.

Name three common Sukuk structures.

Ijarah Sukuk (asset lease-based), Mudarabah Sukuk, Musharakah Sukuk, Salam Sukuk, Istisna Sukuk and Wakalah Sukuk. Ijarah Sukuk are the most common and tradable.

Why are pure Salam and Murabaha Sukuk generally not tradable in the secondary market?

They represent debt/monetary receivables; trading debt at other than par would constitute Riba (Bai-al-Dayn restriction). Asset-based Sukuk (Ijarah) are tradable because they represent ownership of tangible assets.

What is the role of the Shariah Supervisory Board (SSB)?

The SSB is an independent body of qualified Shariah scholars that reviews, approves, and supervises the institution's products, contracts and operations to ensure Shariah compliance, and issues Fatawa and an annual Shariah report.

Under SBP's Shariah Governance Framework, what is a Resident Shariah Board Member (RSBM)?

The RSBM is a Shariah Board member based at the bank who provides day-to-day Shariah guidance, supervises the Shariah Compliance Department, and bridges the Board and management.

What is the purpose of a Shariah Audit?

Shariah audit is an independent assessment verifying that the institution's activities, transactions and products comply with Shariah rulings, Shariah Board fatawa, and SBP/AAOIFI standards. It can be internal or external.

Differentiate Shariah Compliance review and Shariah Audit.

Shariah Compliance (review) is an ongoing, proactive monitoring function ensuring real-time adherence. Shariah Audit is a periodic, independent ex-post examination verifying compliance and reporting to the Board/regulator.

List the key organs of SBP's Shariah Governance Framework for Islamic Banking Institutions.

Board of Directors, Shariah Board (min. 3 scholars incl. an RSBM), Shariah Compliance Department, Internal Shariah Audit, External Shariah Audit, and the Product Development/management functions.

How many scholars are required minimum on an IBI's Shariah Board under SBP framework?

A minimum of three Shariah scholars, one of whom must be the Resident Shariah Board Member (RSBM).

Define Takaful and the contract on which it is based.

Takaful is Shariah-compliant mutual insurance based on Tabarru (donation) and mutual cooperation, where participants contribute to a common fund to indemnify members against defined losses, avoiding Riba, Gharar and Maysir.

Name the two main operating models of Takaful.

Wakalah model (operator acts as agent for a fee/Wakalah fee) and Mudarabah model (operator manages the fund as Mudarib sharing investment profit). A hybrid Wakalah-Mudarabah model is also common.

What are the two distinct funds in a Takaful operation?

The Participants' Takaful Fund (PTF) — holding Tabarru contributions to pay claims — and the Operator's/Shareholders' Fund (OF/SHF) — which manages operations and earns Wakalah fees. Funds are segregated.

How is a surplus in the Participants' Takaful Fund treated?

Underwriting surplus belongs to the participants and is distributed back to them (and/or carried forward as reserves), not to the operator/shareholders — unlike conventional insurance profit retained by the company.

What is Re-Takaful?

Re-Takaful is the Shariah-compliant equivalent of reinsurance, where a Takaful operator cedes risk to a Re-Takaful operator on cooperative (Tabarru) principles.

Why is conventional insurance considered non-compliant in Shariah?

It contains Riba (interest-based investments), Gharar (uncertainty over premium vs. payout), and Maysir (gambling-like risk transfer for gain), and premiums become the company's property rather than a cooperative donation pool.

What Shariah-compliant instrument is used by Islamic banks for short-term liquidity management in Pakistan?

Government of Pakistan Ijarah Sukuk (GIS) and Bai Muajjal of Sukuk, plus SBP's Shariah-compliant Open Market Operations (Mudarabah-based) and the Islamic Export Refinance Scheme.

What is Commodity Murabaha used for in Islamic bank liquidity management?

Banks place or raise short-term funds by buying/selling commodities (often metals) on deferred Murabaha, generating a known return — a Shariah-compliant alternative to interbank interest placements.

Name two risks unique to or heightened in Islamic banks compared to conventional banks.

Displaced Commercial Risk (pressure to pay competitive returns to depositors from shareholder funds) and Shariah Non-Compliance Risk (income/transactions becoming impermissible). Also rate-of-return risk and equity investment risk in profit-sharing modes.

What is the role of AAOIFI?

AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions), based in Bahrain, issues Shariah, accounting, auditing, governance and ethics standards to standardize Islamic finance practices globally.

How does AAOIFI accounting treat a Murabaha transaction's profit recognition?

Profit on deferred-payment Murabaha is recognized on an accrual basis proportionately over the credit period (or as instalments fall due), reflecting the asset-sale nature rather than interest accrual.