Final-Term Exam Summer – 2021

Subject: Islamic Studies Submission Duration: 3 Hours

Name: Hafiz Huzafah Ahmed Siddiqui ID: 10957
Instructor: Rasheed Ahmed Submission Date: 07-09-2021
Program: BBA Max. Marks: 40

Department of Business administration

 Question 1. (07)

How does an Islamic bank deal in Mudaraba and what are the areas where
Mudaraba can be applied?

Answer 1:
An Islamic bank deal in Mudaraba as a depositer side means bank work as Mudarib(Manager) or
sometimes the bank as Rabbul Maal(investor). As in single depositer bank acts as mudarib and
client (depositer) is rab-ul-maal. So, the owner of Islamic banking works as business man also as
they involve assets which give strength to its Islamic banking system. From deposits side the
Islamic bank work as Mudarib (Manager). As all decisions are made by Islamic bank. It have
knowledge about business management, knows about business terms and conditions. From
investor side the Islamic Bank work as Rab-ul-Maal (Investor).
The areas where Mudaraba can be applied some of are as follows:
 Project financing.
 Short/medium/long- term financing
 LC without margin (for Mudra)
 Export financing (pre-shipment financing)
 Import financing
 Working capital financing
 Small and medium enterprises setup financing
 Inland bills drawn under inland letters of credit
 Bridge financing
 Inland bills drawn under inland letters of credit
 Question 2. (07)
Describe Shirkat ul Aqd and its all three types and which kind of Musharka does
an Islamic bank apply as a mode of finance?

Answer 2:

Shirkat-Ul-’Aqd:
This is the second type of Shirkah which means: “A partnership effected by a mutual contract
in which the partners join together with different contributions, work or obligation for the
purpose of earning profit”.
It may also be called as “Joint commercial enterprise.”
It is divided into three kinds:
a. Shirkat-ul-amwal (contractual partnership)
b. Shirkat-ul-wujooh ( goodwill )
c. Shirkat-ul-A’mal (joint venture for services )

a. Shirkat-ul-Amwal:
 It is the most important & commonly used form of Shirk at.
 Where all the partners invest some Capital into a Commercial enterprise.

b. Shirkat-ul-Wujooh:
 The word Wujooh comes from Wajahat meaning goodwill
 Here the partners contribute in the business not through capital but through their
goodwill and share profit at an agreed ratio.
 Hence this is a partnership in Goodwill.
 All they do is that they purchase the commodities on a deferred price and sell them at
spot. The profit so earned is distributed between them at an agreed ratio.

c. Shirkat-ul-A’mal:
 Where all the partners jointly undertake to render some services for their customers.
 The fee charged from them is distributed among them according to an agreed ratio.
 If two persons agree to undertake tailoring services for their customers on the condition
that the wages so earned will go to a joint pool which shall be distributed between them
 irrespective of the size of work each partner has actually done.

Shirkat-ul-amwal is use in Islamic bank as it apply as Islamic mode of finance.

The term Musharakah has been introduced recently by those who have written on the subject of
Islamic modes of financing. It is normally restricted to a particular type of “Shirkah”. That is, the
Shirkat-ul-amwal, where two or more persons invest some of their capital in a joint commercial
venture. However, sometimes it includes Shirkat-ul-a’mal also where partnership takes place in
the business of services.

Question 3. (07)
Which model of Takaful is being adopted in Pakistan and how does it work?

Answer 3:

In Pakistan “Waqf Model” is used which explains the contract of takaful which underlines the
agreement or consent of the participant that the takaful contribution paid in return for participating
in the takaful product to be credited by the operator into the takaful fund in accordance with the
principle of waqf or endowment.
First a waqf account is made by the operator within the takaful fund. After this the operator is
required to abandon some kind of “seed” money as waqf to generate the said waqf account. This
waqf account of the takaful fund will be invested similar to the three business models. The Waqf
fund shall work to achieve the following objectives:
 To extend financial assistance to its members in the event of losses.
 To extend benefits to its members strictly in accordance with the Waqf Deed.
All the expenses related to the underwriting and operational cost of takaful shall be charged to the
Waqf fund. As manager, the takaful operator will perform all functions necessary for the operations
of the Waqf against a Wakala fee to be deducted from the contribution paid by the participants. As
Mudarib, the operator will manage the investment of the takaful fund including its Waqf account
in Shariah-compliant investment avenues and will share its returns on the investment at an agreed
ratio similar to the profit sharing structure under the Mudaraba contract.
The different principles of Shariah are used in the takaful contract to express the consent of the
participants for their contributions to be credited into the takaful fund for the purpose of
undertaking the concept of joint guarantee as encapsulated in the term takaful. In contrast to the
Waqf model, the other three models applied the principle of tabarru to the contract.
It is a basic feature of the model below that the Waqf Fund will lay down the rules for distribution
of its proceeds to the beneficiaries and will determine how much compensation be paid out to a
participant. In addition, the Waqf will be the owner of the contributions and has the right to act as
a legal entity and dealing with its surplus. The operator, whilst managing the Waqf Fund, will
assume two different functions at the same time manager and Mudarib or entrepreneur.

Question 4. (07)
How does an Islamic bank deal in Ijara as a mode of finance? Write the procedure
and way of transformation of ownership to customer.

Answer 4:
Like murabahah, Ijara was not originally a mode of financing. It is simply a transaction meant to
transfer the usufruct of a property from one person to another for an agreed period against an
agreed consideration. However, certain financial institutions have adopted leasing as a mode of
financing instead of long term lending on the basis of interest. This kind of lease is generally
known as the ‘financial lease’ as distinguished from the ‘operating lease’ and many basic features
of actual leasing transaction have been dispensed with therein.

When interest-free financial institutions were established in the near past, they found that leasing
is a recognized mode of finance throughout the world. On the other hand, they realized that leasing
is a lawful transaction according to Shariah and it can be used as an interest-free mode of financing.
Therefore, leasing has been adopted by the Islamic financial institutions, but very few of them paid
attention to the fact that the ‘financial lease’ has a number of characteristics more similar to interest
than to the actual lease transaction. That is why they started using the same model agreements of
leasing as were in vogue among the conventional financial institutions without any modification,
while a number of their provisions were not in conformity with Shariah. Its procedure is as follow

 The customer approaches the Bank with the request for financing and enters into a promise
 to lease agreement.
 The Bank purchases the item required for leasing and receives title of ownership from the
vendor.
 The customer approaches the Bank with the request for financing and enters into a promise
to lease agreement.
 The Bank purchases the item required for leasing and receives title of ownership from the
vendor.
 The Bank makes payment to the vendor.
 The Bank makes payment to the vendor.

The Transformation of Ownership to Customer:

a) A promise to sell for a token money or other consideration, or by accelerating the payment
of the remaining amount of rental, or by paying the market value of the leased property.
b) A promise to give it as a gift (for no consideration).
c) A promise to give it as a gift, contingent upon the payment of the remaining installments.

The transfer of title must be evidenced in a separate document independent of the contract of
Ijarah.

Question 5. (06)
Is it allowed to sale or rent out undivided portion of one’s ownership?

Answer 5:
An undivided property is not just a property that has not been subdivided into different sections. It
is usually one piece of property, owned by more than one person, in which all owners have an
undivided interest. This type of ownership often occurs when a piece of property is left to siblings
to share or if friends or partners buy a piece of land together. Issues arise when one of the partners
wants to sell or rent out his interest in the property but others do not. In such as case, ensure that
communications are honest and clear among all parties involved.
If you are tenants in common, you have an undivided interest in the property; as this type of owner,
you can sell or rent out only your interest in the property. To sell or rent out the whole piece, all
owners must agree to sell or to rent. Joint tenancy gives rights of survivorship to the surviving co-
owner when one of the owners dies.

Question 6. (06)
Define Mudarib and Rab ul Mal and describe Wither Islamic bank always work as
a Mudarib or are there cases where bank deal as a Rabb ul Mal?

Answer 6:
Mudarib:
Mudarib is the entrepreneur or investment manager in a Mudaraba who invests the investor's funds
in a project or portfolio in exchange for a share of the profits.

Rab-ul-Maal:
Rabb ul Maal is the party in a Mudaraba contract who provides the capital to be invested by the
Mudarib for an agreed profit sharing ratio.

An Islamic bank deal in Mudaraba as a depositor side means bank work as Mudarib (Manager) or
sometimes the bank as Rabbul Maal (investor).

For example:
 One between the Islamic bank serving in the capacity of investor (rab al mal) and the project
client as the working partner (Mudarib): This contract indicates that the two parties will share
the profit on a basis of 70:30 (with the Islamic bank getting 70 percent and the client getting
30 percent). Assume that the client isn’t making any capital contribution but is instead
investing time, effort, and expertise in the project

 One between the depositor as investor (rab al mal) and the bank as a fund manager (Mudarib):
The depositor signs a contract with the bank for a two-year sharia-compliant project. The
investor and the bank agree to share the profit in a 60:40 ratio (60 percent of profit goes to the
investor and 40 percent to the bank). The investment made by the depositor for this specific
project is 1 million.