True/False questions

1. Both the mudarib and rab al-mal in the partnership contract are active partners in the
day-to-day running of the business.
False

2. The legality of mudarabah contract is established in only the ijma (consensus of opinion
of scholars).
False

3. Unlike mudarabah, musharakah emphasises the practical participation of both parties in

the partnership business.
True

4. In the event of losses under musharakah, the entrepreneur loses his/her labour and the
financier loses the capital.
False

5. In the juristic sense, hawalah is a special type of security contract which simply means
debt assignment.
True

6. Rahn contract involves positive steps towards securing a debt through some forms of
mortgage.
True

7. The legality of rahn (mortgage) contract is implied in the Qur’an and Sunnah.
False

8. Kafalah means paying-off overdue obligations.

False

9. The two major types of kafalah (guarantee) in Islamic law are kafalah bi al-nafs (physical
guarantee) and kafalah al-manfa’a (usufruct).
False

10. The principal party in wakalah contract is the muwakkil while the agent is the wakil in an
agency relationship.
True

11. Wakalah is a contract establishes an agency relationship between two parties for a
specific purpose; therefore such authority must be specific.
False

12. Wakalah contract is normally considered as an accessory contract.

True
 13. The legitimacy of the concept and practice of wakalah is established in the Qur’an and
Sunnah.
True

14. There is no common consensus among Muslim jurists regarding the permissibility of a
wadi‘ah contract.
False

15. Wadi‘ah is used in relation to both current accounts and saving accounts.
True

16. Wadi‘ah yad al-amanah (safe-keeping under a trust) is a trust safe-keeping which is
considered a commercial act aimed at generating profit.
False

17. In Wadi‘ah yad al-amanah depositors keep their money with a bank, and this money is
considered as the bank’s source of funds with which it carries out its business.
False

MCQ

1. The following are partnership contracts which have been transformed into financial instruments
EXCEPT:
a) mudarabah
b) musharakah
c) bay al-salam
d) musharakah mutanaqisah

2. The two types of mudarabah are:

a) short term and long term mudarabah
b) restricted (muqayyad) and unrestricted (mutlaq) mudarabah
c) personally oriented and business oriented mudarabah
d) none of the above

3. Musharakah mutanaqisah is a chain of three contracts where the first contract is:
a) a contract of lease between the financier and the client under the joint ownership.
b) a joint ownership between a client and an enterprise (financier).
c) a contract with a third party to guarantee the proper implementation of the agreement
d) where the client partner concludes another contract with the financing partner.

4. Differences between musharakah and mudarabah contracts include all the following
except:
a) sources of financing the business
 b) rights of partners to participate in the management of the business
c) legality of the contracts
d) liability of the partners

5. The following items are elements of Kafalah EXCEPT:

a) makful ‘anhu (principal debtor or obligor or guaranteed)
b) kafil (surety or guarantor);
c) witness (s)
d) sighah (expression)

6. The application of kafalah in modern Islamic financial institutions can be seen in all the
following EXCEPT:
a) documentary credit system which is largely used in international trade.
b) supporting guarantee contract for the major contracts in Islamic finance
c) credit card transactions
d) the primary Islamic capital market

7. The modern application of Wakalah is seen in:

a) modern Islamic banking, finance and takaful,
b) corporate Wakalah,
c) wakalah model of waqf
d) all of the above

8. -------------------- can be defined as the contract of entrusting one’s precious property or money to
the care of another, usually a trusted person or a secured corporate entity.
a) rahn
b) wadi‘ah
c) kafalah
d) ijarah

9. Waqf, ibra’, hibah, wa’ad ,and tabarru’ contracts are considered:

a) unilateral supporting contract
b) profit and loss sharing contracts
c) accessory contracts
d) religious contracts
10. the waiving of one’s financial right or ownership that is owed to him/her in totality or partially is
known as:

a) `tabarru’ (donation)
b) ibra’ (foregoing of right)
c) hibah (gift)
d) wa’ad (promise) tabarru’
 11. Rewarding customers who make their monthly payments according to the schedule without any
default, through the crediting of a certain amount is an example of:
a) hibah
b) tabarru'
c) qard al-hasan
d) hibah
12. A promise or undertaking by a party to carry out a unilateral contract is the description of:
a) wakalah
b) al-wa'ad
c) a salam
d) takaful

Short essay questions

Question 1
Discuss the two types of mudarabah transaction.
The two types of mudarabah transaction are:
1. A restricted mudarabah partnership is “a contract in which the capital provider restricts the actions of
the mudarib to a particular location or to a particular type of investment as the capital provider considers
appropriate, but not in a manner that would unduly constrain the mudarib in his/her operations.” In this
type of mudarabah transaction, the powers of the mudarib are restricted with regard to the kind of trade to
be engaged in, where it should be carried out, and the period for same. The rabb al-mal may specify the
type of business he/she wants the mudarib to invest his/her funds in and the timeframe for the business.
2. In an unrestricted mudarabah transaction, the rabb al-mal does not specify the type of business in
which the mudarib can invest and no timeframe is specified. The mudarib can use their discretion in
respect of their experience and expertise as an entrepreneur. Their authority is absolute and they can use
the capital in the manner they deem fit in accordance with the principles of the Shari‘ah
Question 2
List the five elements of kafalah.
The five elements of kafalah are:
• makful ‘anhu (principal debtor or obligor or guaranteed)
• kafil (surety or guarantor)
• makful lahu (creditor or obligee)
• makful bihi (object of guarantee)
• sighah (expression).
Question 3
Differentiate between musharakah and mudarabah .