CONFIDENTIAL AC/FEB2021/MAF663

UNIVERSITI TEKNOLOGI MARA

FINAL ASSESSMENT

COURSE : ISLAMIC FINANCE

COURSE CODE : MAF663
EXAMINATION : 16 FEBRUARY 2021
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of four (4) questions.

2. Answer ALL questions. Start each answer on a new page.

3. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 4 printed pages

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CONFIDENTIAL AC/FEB2021/MAF663

QUESTION 1

a. Islamic Finance is built upon the principles of Shariah which includes the prohibition
of some elements in contracts.

Required:

State any FIVE (5) prohibitions in Islamic contract.

(5 marks)
b. Explain the concept of man as vicegerent of Allah.
(10 marks)

c. The presence of information costs undermine the ability of a potential surplus fund
unit (SFU) provider to find the most appropriate deficit fund unit (DFU) in the absence
of intermediation.

Required:

Explain the types of information cost involved in the statement above.

(10 marks)
(Total: 25 marks)

QUESTION 2

a. Explain briefly FIVE(5) advantages of establishing an Islamic interbank money market.

(5 marks)

b. Bursa Suq Al-Sila’ (BSAS) provides a platform for commodity murabahah transactions.
The underlying assets used in this exchange include crude palm oil (CPO), plastic
resin (PE) and RBD palm olein (OLN).

Required:

Discuss the trading features of the Bursa Suq Al-Sila’ (BSAS).

(10 marks)

c. Malaysia established an Islamic interbank money market on 9 January, 1994, to

facilitate the activities of liquidity exchange and short-term investments. This market
provides for a collection of instruments,such as muḍarabah interbank investment,
government investment certificates and Islamic treasury bills. The rate of profit
(Interbank Rate) is calculated on a daily basis using weighted average rates.

Required:

i. Explain the Islamic interbank market instruments that are structured based on
mudarabah contracts.
(5 marks)

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CONFIDENTIAL AC/FEB2021/MAF663

ii. Explain TWO (2) factors that determine the profit payable to the investing bank in
the mudarabah interbank investment.
(5 marks)
(Total: 25 marks)

QUESTION 3

According to Mohd Zin et al (2011), Sukuk is among the most successful Islamic financial
product in the industry and is one of the fastest growing sectors in the global financial
landscape. Recently, there are also growing number of scientific studies related to Islamic
finance and Islamic banks especially on Sukuk (Abrorov,2020).

Required:

a. Explain briefly TWO (2) beneficial reasons for investing in Sukuk Instrument as
compared to conventional bonds.
(5 marks)

b. Discuss the differences between Conventional Bond and Sukuk.

(10 marks)

c. Discuss the issues and challenges in Sukuk pricing.

(10 marks)

(Total: 25 marks)

QUESTION 4

a. Nowadays equity financing is well accepted as permissible investment activity but

not in the early days of contemporary Islamic Finance.

Required:

Outline the Shariah permissibility on equity market investments.

(5 marks)

b. Assume all the following companies claimed that they are shariah-compliant
companies:

i) During the year, VZTEC Bhd received interest from their conventional fixed
deposit account worth RM12,450. The group revenue is RM1.4 million.
ii) The subsidiary of Renang Berhad diversified their business and ventures
into transporting tobacco for domestic sales. The income generated from
the subsidiary amounted to RM200,000, meanwhile the total group
revenue is worth RM2.3 million.
iii) Kewaja Berhad placed a chunk of money in the non-shariah compliant
companies worth 30% of their total investment.

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CONFIDENTIAL AC/FEB2021/MAF663

iv) Annex Berhad own a commercial building and was rented out for rental
income. The building was fully occupied and rental received from tenants
that doing non-halal business is worth RM180,000. Total revenue earned
for the year is amounted to RM965,000.
v) Interest-bearing debt for Santesh Bhd is worth RM500,000. It was used to
finance the procurement of their assets. The total asset reported for the
year is amounted to RM1.12 million.

Required:

Discuss the Shariah compliance status for each of the above companies
according to SAC-SC Malaysia.

(10 marks)

c. According to Global Shariah standards and industry practice, investment in the

mixed-activity companies is considered as non Shariah-compliant if the non-
permissible activities contribute more than 5% to the total revenue of the company.
Income received from the company also can be considered as non-halal.

Required:

Suggest TWO (2) solutions for the above issue together with relevant example.
(10 marks)
(Total: 25 marks)

END OF QUESTIONS

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