COLLEGE OF BUSINESS MANAGEMENT AND ACCOUNTING

SULTAN HAJI AHMAD SHAH CAMPUS

FINAL EXAMINATION

SPECIAL SEMESTER 2016/2017

PROGRAMME : BACC (HONS)/ BFIN (HONS)

SUBJECT : ISLAMIC BANKING AND FINANCE

CODE : FICB383

DATE : 2 MAY 2017 (TUESDAY)

TIME : 2.30 PM – 5.30 PM (3 HOURS)

INSTRUCTIONS TO CANDIDATES

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

2. Answer ALL questions.

3. ALL answers must be written using the answer booklet provided.

4. Each answer for every question must start on a new page.

THIS EXAMINATION BOOKLET CONTAINS 9 PAGES INCLUDING THIS COVER

PAGE

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 FICB383 Special Semester 2016/2017

QUESTION 1 [25 marks]

(a) Islamic Banking has the same purpose as conventional banking except that it
operates in accordance with the rules of shari’ah, known as Fiqh al-Muamalat
(Islamic Rules on Transactions). Discuss THREE (3) elements that are prohibited
in Islamic transactions.
[6 marks]

(b) Shirkat ul-Aqd in Musyarakah contract is an agreement between two or more

persons for common participation in capital and profits for
commercial/contractual partnership. Explain THREE (3) classifications of
Shirkat ul-Aqd.
[6 marks]

(c) Given the total funds available for investment included shareholders’ equity as at
31st December 2016 amounting to RM1,500 million and others are as follows:

Items Amount
Specific Investment Account RM550 million
General Investment Account RM350 million
Mudharabah Account RM200 million

Mudharib will use for investment the maximum amount up to 85% from the funds
available; while the rest of Rabb al Mal allow the Mudharib to invest up to 75%
only. You noticed the net profit from the investment activities was about RM100
million and it was agreed that the profit sharing ratios between Rabb al Mal and
Mudharib are as follow:

Types of Account Mudharib

Specific Investment Account 30%
General Investment Account 20%
Mudharabah Account 15%

Required:

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 FICB383 Special Semester 2016/2017

Calculate the profit allocated to shareholders for each type of investment account
before and after the shareholders’ share of investment profits.
(Note: Use at least 3 decimal points in your calculation)
[13 marks]

QUESTION 2 [25 marks]

(a) Murabahah is the most popular and most common mode of Islamic financing. It is
also known as mark up or cost plus financing. The word Murabahah is derived
from the Arabic word Ribh that means profit. List THREE (3) conditions for
element item to be sold under the Murabahah concept.
[3 marks]

(b) Al-Ijarah contract is more widely used nowadays than ever before, primarily due
to the creation of large commercial enterprises since the dawn of the industrial
revolution. Explain the term and condition on the property to be leased on Al-
Ijarah financing.
[5 marks]

(c) Rozita asked BBC Islamic Bank to acquire on her behalf a machine under the
concept of Murabahah with the purchase price of RM100,000 and the profit rate

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 FICB383 Special Semester 2016/2017

the bank wanted to charge is 6.5%. Rozita agreed with the condition of the
contract and to settle the full amount at the end of the maturity date in one year
from signing the contract.
(Note: Use at least 5 decimal points in your calculation)

Required:

(i) How much is the selling price?

[3 marks]

(ii) Calculate the total profit earned by BBC Islamic Bank.

[2 marks]

(d) Zaki approaches the Saujana Islamic Bank and applies for financing under
the concept of Bai Bithaman Ajil. The purchase price for the house is
RM800,000 and profit rate is 4.5% per annum. The period of financing is
20 years and exclusive of 2 years as grace period. The profit rate for the
grace period is 3% per annum. Zaki wants to repay the selling price in 240
installments.
(Note: Use at least 5 decimal points in your calculation)

Required:

Calculate the:
(i) Annuity factors.
[2 marks]

(ii) Monthly installments.

[3 marks]

(iii) Installment during grace period.

[2 marks]

(iv) Selling price based on the constant rate of return method with
grace period.
[3 marks]

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 FICB383 Special Semester 2016/2017

(v) Total profit.

[2 marks]

QUESTION 3 [25 marks]

(a) Bendjilali and Khan (1995) and Muhammad Taqi Usmani basically agreed on the
implementation process of Musharakah Mutanaqisah Partnership (MMP). They
agreed that the product could help people to rely less on other financing facilities
such as the Bai Bithaman Ajil (BBA) and Murabahah. The scholars agreed that it
is best to implement MMP for house financing or machinery financing whereby
both assets can be leased out according to agreed rental. Joint ownership of a
house or machinery is accepted by all schools of Islamic jurisprudence since the
financier sells its shares to the customer (Taqi Usmani, 2002). The concept of
diminishing musharakah is not confined to home ownership only. It can also be
applied to other forms of acquiring assets such as buying a car or a taxi for
earning income by using it as a hired vehicle. Explain the objective of
Musyarakah Mutanaqisah Partnership (MMP) AND give TWO (2) examples of
application that are suitable for this contract.
[4 marks]

(b) Consider the same example as for the MMP concept where a customer wishes to
buy a house priced at RM400,000. Let’s assume again the financier puts
RM359,708. The average rental for similar homes in the locality is agreed upon
between the two parties to be RM1,000 per month. The customer wishes to add
another RM510 monthly in order to redeem the financier’s share in 20 years. This
gives the total monthly payment as RM1,510.

Construct the schedule of MMP for the period of THREE (3) months and at least
for each month should encompass the customer’s equity balance, bank’s equity

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 FICB383 Special Semester 2016/2017

balance, the profit earned by customer or the bank that are generated from
monthly rental payment, AND the equity ratio of customer or the bank.
(Note: Use at least 5 decimal points in your calculation)
[15 marks]

(c) Sukuk commonly refers to the Islamic equivalent of bonds. However, as opposed
to conventional bonds, which merely confer ownership of a debt, Sukuk grants the
investor a share of an asset, along with the commensurate cash flows and risk. As
such, Sukuk securities adhere to Islamic laws sometimes referred to as shari’ah
principles, which prohibit the charging or payment of interest.

The emergence of Sukuk has been one of the most significant developments in
Islamic capital markets in recent years. Sukuk instruments act as a bridge. Where
its link their issuers, primarily sovereigns and corporations in the world, with a
wide pool of investors, many of whom are seeking to diversify their holdings
beyond traditional asset classes. In this way, funds raised through Sukuk can be
allocated in an efficient and transparent way to infrastructure initiatives and other
deserving projects. Explain THREE (3) types of sale-based sukuk in Malaysia.
[6 marks]

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 FICB383 Special Semester 2016/2017

QUESTION 4 [25 marks]

(a) Issuance of Letter of Credit-I (LC-i) can be based on three Shariah principles
namely Murabahah (cost-plus profit), Musharakah (partnership) and Wakalah
(agency). Below is the process flow of Murabahah LC-i:
1. Customer will negotiate LC-i requirements with Islamic Bank (IB) and
request IB to purchase or import the goods which indicate that customer is
willing to purchase the goods from IB under Murabahah principle;
2. IB then establishes the LC-i and uses the bank’s own funds to pay the
negotiating bank; and
3. IB subsequently sells the goods to the customer at an agreed profit margin.
The customer is entitled to settle his liabilities on an agreed deferred term.

Required:

Describe the process flow of Musharakah LC-i AND Wakalah LC-i.

[10 marks]

(b) Islamic Negotiable Instrument of Deposit (INID) is issued with the following
features:

Nominal value RM2,000,000

Issuance date 31st December 2016
Maturity date 31st December 2017
Profit-sharing ratio 70:30
Profit date Quarterly basis with the first dividend date 31st March 2017

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 FICB383 Special Semester 2016/2017

The Islamic Negotiable Instrument of Deposit (INID) was sold for value on 31 st
May 2017 and the expected dividend rate of the INID is 10 percent (the prevailing
was 9.5 percent). Based on 70:30 profit sharing ratio, the expected dividend rate is
7 percent.

Required:

Determine the price of the INID.

[5 marks]

(c) AHN Islamic Investment Bhd (AHN-i) invested RM3 million with SAS Islamic
Bank (SAS) for one month. Profit sharing ratio is negotiated at 80:20. Based on
the prevailing gross profit rate during transaction of 7 percent, AHN-i is expected
to receive net profit rate of 6.5 percent. Upon maturity of the investment, SAS’s
effective gross profit rate will increase to 8 percent.

Required:

(i) How much is the profit payable to AHN-i?

[5 marks]

(ii) Calculate the profit payable to AHN-i if the maturity period increases to
180 days.
[3 marks]

(iii) Explain the effect of longer maturity period on the amount of profit
payable.
[2 marks]

-END OF QUESTION PAPER-

NZR/HBR/NOI/NHR

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