Sources of Finance (3)

Question 1

Basis of islamic finance?

Answer 1

The concept of sharing risk and reward between investor and user of funds

Question 2

What is forbidden under sharia law?

Answer 2

Making profits by lending alone and charging of interest (riba)

Question 3

Bank’s profitability in islamic finance?

Answer 3

It’s clsoely tied to that of the client

Question 4

Islamic finance words?

Answer 4

Murabaha (trade credit)
Musharaka (joint venture)
Mudaraba (equity)
Ijara (leasing)
Sukuk (bonds)

Question 5

What is murabaha?

Answer 5

Deferred payment sale or an instalment credit sale. Seller delivers immediately and buyer pays goods later

Question 6

What is musharaka?

Answer 6

Partnership agrement whereby all partners provide capital and know how. Profits and losses are shared along with no dividends

Question 7

What is mudaraba?

Answer 7

One investor contributes capital and manager contributes skill and expertise. Profits are shared in a pre-agreed ratio and losses only relate to investor

Question 8

What is ijara?

Answer 8

Lessor is still owner of asset and incurs risk of ownership. Lessor responsible for major maintenance and insurance. Lessee takes responsibility for day-to-day maintenance

Question 9

What is sukuk?

Answer 9

Similar to a bond but there’s an underlying tangible asset. The holder shares risk and rewards of ownership. Which gives equity as well as debt