Islamic Banking and Finance (Sample Question Paper)
Final Year – Master’s Program
Duration: 3 Hours
Total Marks: 60
Instructions:
1. The paper is divided into two sections: A and B.
2. Section A: Answer any four questions. Case Study I is compulsory.
3. Section B: Answer any four questions. Each question is worth 5 marks.
Section A
Question 1 (Case Study)
A newly established Islamic bank, aims to launch a home financing product using the Diminishing
Musharakah model. In this model, the bank partners with the customer to jointly purchase a property, where
the customer gradually buys the bank's share in the property over an agreed period. The bank earns profit
through rent on its ownership share. However, the bank faces challenges regarding rent calculation,
ownership transfer, and Shariah compliance during the contract period.
a) What are the main characteristics of the Diminishing Musharakah model?
b) How does this model comply with Shariah principles in comparison to conventional mortgage
models?
c) What challenges might the bank face in ensuring full Shariah compliance in this product?
d) Suggest possible ways to address the rent calculation issue in this model.
Question 2 (Case Study)
An Islamic finance institution, decides to introduce a Ijarah based car financing product. The customer
selects the car, and the bank purchases it on behalf of the customer. The bank then sells the car to the
customer at an agreed profit margin. However, the bank faces competition from conventional banks offering
lower interest rates and quicker processing.
a) How does the Ijarah model operate in this car financing product?
b) What Shariah principles are adhered to in this model that distinguishes it from conventional loan
products?
c) What competitive advantages and challenges does Islamic Finance Institution face with this product
in a conventional market?
d) Suggest strategies could adopt to enhance its competitiveness.
Question 3
Explain the concept of Sukuk (Islamic bonds) and differentiate it from conventional bonds. Highlight the
various types of Sukuk structures commonly used and discuss how they comply with Shariah principles.
Question 4
Describe the Murabaha financing structure and evaluate its applicability and challenges for short-term
financing needs in an Islamic financial institution. Provide examples.
Question 5
Examine the key differences between Modarbah and Musharakah contracts in Islamic deposit. Discuss
the three advantages and three limitations of each model from a risk and profitability perspective for both
the bank and the customer.
Question 6
Explain the Salam contract and the conditions under which it is deemed valid in Islamic finance. Discuss
its relevance to modern agriculture financing.
Classification: Public
Section B
Question 7
Calculate the profit earned in a Murabaha financing arrangement where a bank purchases an item for
100,000 and sells it to a customer for 120,000 on deferred payment terms. If the customer is to repay over
12 months, what is the monthly installment amount?
Question 8
Explain the Mudarabah model in Islamic finance. Describe its key features and how profit and loss are
shared between the parties involved.
Question 9
A bank and customer enter into a Musharakah (partnership) to purchase a property worth 5,000,000. The
bank provides 60% of the funds, and the customer provides 40%. Calculate each party’s share of ownership
and discuss how profit/loss would be distributed if the property generates 500,000 in rental income annually.
Question 10
Describe the Istisna contract in Islamic finance. What types of projects are typically financed through
Istisna, and how does it differ from other financing models like Ijarah and Murabaha?
Question 11
Calculate the rental income share for each party in a Diminishing Musharakah arrangement if the bank
owns 70% of a property generating a monthly rent of 20,000, and the customer owns 30%.
Question 12
Define the concept of Profit & Loss Sharing in Islamic banks and explain risk & reward in this mechanism
Classification: Public