ASSIGNMENT

FALL 23
ISLAMIC BANKING AND FINANCE
Marks: 20

Arguments regarding contemporary Islamic banking.

Question:1 Arguments in Contemporary Islamic Banking
Consider a contemporary Islamic bank that offers Musharakah-based financing. A customer
wants to purchase a property worth $200,000 and seeks financing. The bank agrees to provide
80% of the property's value, and the customer will contribute the remaining 20%. The customer
and the bank will share rental income and expenses proportionally.
Calculate the customer's and the bank's initial investment amounts and profit-sharing ratios.
Solution
Customer's Investment = 20% of $200,000 = $40,000
Bank's Investment = 80% of $200,000 = $160,000
The profit-sharing ratio is based on the capital contribution, so it's 20% for the customer and
80% for the bank.
Question 2
In a country with a population of 10 million, the total wealth is $500 billion. Calculate the
average wealth per capita.
Solution
Average Wealth Per Capita = Total Wealth / Population
Average Wealth Per Capita = $500,000,000,000 / 10,000,000 = $50,000

Question 3
A customer deposit $10,000 in an Islamic bank's Mudarabah savings account. The bank offers a
profit-sharing ratio of 70:30 in favor of the depositor. If the bank generates a profit of $2,000 in
one year, calculate the profit distribution.
Solution
Profit for Depositor: (70% of $2,000) = $1,400
Profit for Bank: (30% of $2,000) = $600
Question 4
An Islamic bank provides a Musharakah-based home financing facility. A customer buys a house
worth $200,000, and the bank contributes 80% of the purchase price. The customer pays a down
payment of $40,000. Calculate the customer's share of ownership and the bank's share.
Solution
Customer's Share: $40,000 (Down Payment) + $32,000 (20% of $160,000) = $72,000
Bank's Share: 80% of $200,000 = $160,000
Question 5
In an Islamic bank, a customer invests $5,000 in a Wakalah-based investment account. The bank
charges a 5% Wakalah fee on the profits generated. If the investment yields a profit of $1,000,
calculate the Wakalah fee.
Solution
Wakalah Fee = 5% of $1,000 = 0.05 * $1,000 = $50

Riba and Types of Riba

Question 6
A person borrows $10,000 from a conventional bank at an annual interest rate of 6%. Calculate
the total amount to be repaid after three years, assuming simple interest.
Solution
Total Amount = Principal + Interest
Total Amount = $10,000 + (0.06 * $10,000 * 3) = $10,000 + $1,800 = $11,800
Question 7
Calculate the interest earned on a $30,000 fixed deposit in a conventional bank for four years at
an annual interest rate of 5%.
Solution
Interest = Principal x Rate x Time
Interest = $30,000 x 0.05 x 4 = $6,000
Question 8
A person borrows $15,000 from a conventional lender and agrees to repay $16,500 in nine
months. Calculate the amount of interest involved in this loan transaction.
Solution
Interest = Total Repayment - Principal
Interest = $16,500 - $15,000 = $1,500
Question 9
Calculate the interest earned on a $40,000 certificate of deposit in a conventional bank with an
annual interest rate of 4.5% after seven years.
Solution
Interest = Principal x Rate x Time
Interest = $40,000 x 0.045 x 7 = $12,600
Question 10
A company enters into an Ijarah contract with another company to lease machinery. The monthly
lease payment is $1,000, and the lease term is 24 months. Calculate the total lease cost.
Solution
Total Lease Cost = Monthly Payment x Number of Months
Total Lease Cost = $1,000 x 24 = $24,000
Question 11
A person takes a Qard Hasan loan of $5,000 from a friend for six months. Calculate the amount
to be repaid when the loan matures, assuming no profit is charged.
Solution
The Qard Hasan loan does not involve any profit. Therefore, the amount to be repaid is the same
as the principal amount.
Amount to be Repaid = $5,000
Question 12
A company enters into a Mudarabah contract with an investor. The company provides labor, and
the investor provides capital of $50,000. If the profit-sharing ratio is 60:40 in favor of the
investor, and the business generates a profit of $30,000, calculate the profit distribution.
Solution
- Profit for Investor: (60% of $30,000) = $18,000
- Profit for Company: (40% of $30,000) = $12,000
Question 13
A person takes a Bai' Muajjal loan of $10,000 from a bank. The bank charges an additional fee of
$1,000 for deferred payment. Calculate the total amount to be repaid at the end of the payment
term, which is one year.

Solution
Total Amount to be Repaid = Principal + Additional Fee
Total Amount to be Repaid = $10,000 + $1,000 = $11,000
Question 14
A trader enters into a Salam contract with a farmer to purchase wheat. The trader pays $5,000
upfront for the wheat to be delivered in six months. Calculate the total purchase price of the
wheat
Solution
Total Purchase Price = Advance Payment
Total Purchase Price = $5,000
Question 15
A construction company enters into a Musharakah contract with an investor. The investor
contributes $80,000, and the company contributes $20,000. If the profit-sharing ratio is 70:30 in
favor of the investor, and the project generates a profit of $50,000, calculate the profit
distribution.
Solution
- Profit for Investor: (70% of $50,000) = $35,000
- Profit for Company: (30% of $50,000) = $15,000
Question 16
A person invests $25,000 in a Mudarabah contract with a financial institution. The profit-sharing
ratio is 50:50. If the business generates a profit of $10,000, calculate the profit distribution.
Solution
- Profit for Investor: (50% of $10,000) = $5,000
- Profit for Financial Institution: (50% of $10,000) = $5,00
 Islamic mode of Financing – Musharkah
Question 17
Ali invests $20,000, and Hassan invests $30,000 in a Musharakah partnership. If the total profit
earned after one year is $15,000, calculate the profit distribution based on a 60:40 ratio.
Solution
- Profit for Ali: (60% of $15,000) = $9,000
- Profit for Hassan: (40% of $15,000) = $6,000
Question 18
A and B enter into a Musharakah agreement with a capital contribution of $40,000 and $60,000,
respectively. After two years, they earn a total profit of $24,000. Calculate the profit distribution
according to a 50:50 ratio.
Solution
- Profit for A: (50% of $24,000) = $12,000
- Profit for B: (50% of $24,000) = $12,000
Question 19
Three partners, X, Y, and Z, invest $15,000, $20,000, and $25,000, respectively, in a Musharakah
venture. If the total profit earned is $18,000, calculate the profit distribution based on a 2:3:4
ratio.
Solution
- Profit for X: (2/9) * $18,000 = $4,000
- Profit for Y: (3/9) * $18,000 = $6,000
- Profit for Z: (4/9) * $18,000 = $8,000

Mudarbah Financing
Question 20
A Mudarabah partnership is established with a capital provider (Rab al-Maal) investing
$100,000, and the Mudarib investing $20,000. The profit-sharing ratio is 60:40 in favor of the
Mudarib. If the business generates a profit of $30,000, calculate the profit distribution.
Solution
- Profit for Capital Provider: (60% of $30,000) = $18,000
- Profit for Mudarib: (40% of $30,000) = $12,000
Question 21
Two partners enter into a Mudarabah contract with a profit-sharing ratio of 70:30 in favor of the
capital provider. If the total profit generated is $40,000, determine the profit distribution.

Solution
- Profit for Capital Provider: (70% of $40,000) = $28,000
- Profit for Mudarib: (30% of $40,000) = $12,000
Question 22
A Mudarabah partnership has a capital provider investing $50,000, and the Mudarib investing
$30,000. If the total profit earned is $15,000, calculate the profit distribution.
Solution
- Profit for Capital Provider: (50% of $15,000) = $7,500
- Profit for Mudarib: (50% of $15,000) = $7,500