SHI LPI KAUNTI A

I D NO- PGDI BF/906/13

ASSIGNMENTS FOR MODULE V(b)

SECTION ONE Questions 5 X Marks 5 = 25 Marks

Answers in these sections should be in FOUR or FIVE lines ONLY.

Q.1.Define Pure Ijarah Sukuk.

Pure Ijarah Sukuk certificates are issued on stand-alone assets identified on the balance sheet. The assets
can be parcels of land to be leased or leased equipment such as aircrafts and ships. The rental rates of
returns on these Sukuk can be both fixed and floating depending on the particular originator. Ijarah Sukuk
are the securities representing ownership of well defined existing and known assets tied up to a lease
contract, rental of which is the return payable to Sukuk holders.

Q.2.Name a few important aspects for successful investment strategies.

Some important aspects for successful investment strategies are :
1) Successful investing involves doing just a few things right and avoiding serious mistakes. It means an
investor has to beware. He has to plan and do the homework regarding the strength, weaknesses,
opportunities, and threats of the prospect organization.

2) When there are multiple solutions to the problem, choose the simplest one. Sometimes, an investor will
face a serious problem. This problem is usually difficult to solve. Once the problem is clearly defined, there
are multiple solutions to this problem. So, the investor will face the problem in choosing the solution.

3) Try to earn money every time even it is small. In Islam the idle 155 money is entitled for zakat if it is over
the certain limit or nisab and being passed the haul or period of time. The idle is zakatable because Islam
encourages the ummah to activate his wealth.

4) Today is better than yesterday. This is the principle for Muslims. Based on this principle, an investor who
has been in investment field for long has to be more expert in choosing the companies to invest.

5) An investor has to diversify his investment in various types of businesses. He has to invest in multiple
types of risk businesses.. This is because the diversification will help the investor balance his risk.

6) Cost-benefit analysis is the best in determining which companies are the best places to invest. Cost-
benefit analysis is prepared by taking into consideration all the costs that are incurred when the investor
invests. These costs will be deducted from the expected profits.

7) Know the operation of the business. Before investing in any business, an investor is required to know at
least basic information regarding the activity of the business he or she wants to invest. This is to ensure that,
an investor will not do blind imitation and blind investment.

8) The investors have to have balance estimation. It means, not to be overestimated or underestimated.
Usually, the investors will do the prior estimation before doing any analysis and later accept or reject to
invest. This prior estimation is so important whether the investors will choose it or not for further analysis.

9) Beware of the last year achievement. An investor should not totally depend to the last year achievement
of the company. The situation and environment are always changing. Therefore the past year achievement is
only the basis.

10) The financial market is related to the fears, hopes, knowledge and greed of all investors everywhere. For
Muslim investors, all of these feeling should not be there. This is because they will lead to serious
speculation which is prohibited.

11) An investor should have long term planning. The investors should not grab a chance which is short term
based. This is because patience and consistency are valuable assets for the intelligent investors

Q.3.How did Muslim Aid promote Islamic Micro finance in Colombo in association with Amanah
investments?

Muslim Aid implemented a project in Colombo in partnership with Amana Investment to provide micro-
finance to the urban poor. Muslim Aid invested on a mudarabah basis with Amanda Investment, which then
proceeded to manage micro-finance fund. Amanda Investment disbursed and recovered while Muslim Aid
was responsible for community mobilisation and training and motivating the community to pay back the
loan. A scheme like this could also be operated on a musharaka basis. Loans were given to these small and
medium enterprises on a mudarabah and murabaha basis. The whole principal was recovered.
Q.4.How do you define Equity and mention its characteristics?

Equity represents an investment exposed to all kinds of business risks and sharing in the profits of the
business. It may be of a permanent nature, i.e., redeemable only upon liquidation of the business or earlier
by mutual agreement but not on demand. Its characteristics are: 1) Limited liability 2) Profit sharing 3) Highly
liquid 4) Corporate control.

Q.5.What is the origin of Islamic Wealth Management, where does it extend to?

Islamic Wealth Management originates from basic concept of wealth and extends to the basic structures
Islamic Financial Products, portfolio management, asset allocation and overall financial planning. In Islam
Mankind is trustee of the creator and all belongs to him as made clear in Quran. Islamic Wealth
Management has three phases i.e. proper aquistion of wealth, preservation of wealth and disposal of
wealth.




















SECTION TWO Questions 5 X Marks 5 = 25 Marks

Q.1.What are the Shariah compliance screening parameters for DOW JONES Islamic Index?
The shariah compliance screening parameters for Dow Jones Islamic Index are as under:
Industry Screens
Dow Jones provides a list of different types of industries which shariah advisory board has classified as non-
compliant.
They are as under:
Alcohol
Pork-related products
Conventional financial services
Entertainment
Tobacco
Weapons and defense
Financial Ratio Screens
All of the following must be less than 33%:
Total debt divided by trailing 24-month average market capitalization
The sum of a companys cash and interest-bearing securities divided by trailing 24-month average market
capitalization
Accounts receivables divided by trailing 24-month average market capitalization.


Q.2.What is Murabaha instrument of finance mostly used for?

Murabaha is one of the most widely used modes of finance by the Islamic Banks. It is suitable for partial
financing to the investment activities of the customers, in industry, trade or other, It enables the customer /
investor to obtain finished goods, raw material, machines or equipment from the local market or through
import.


Q.3.Define Islamic Investment banking. How does it operate?

Investment Banking was earlier known as Merchant Banking. Investment Bankers do not involve in Retail
Banking by investing their funds with individual or private / corporate entities. Instead they invest in Islamic
Mutual Funds, Islamic Bonds - SUKUK, Equity Funds and such other Market Securities.

There are several ways that banks can structure accounts so that they are sharia-compliant.
Ijara works as a leasing arrangement: the bank buys something for a customer and then leases it back to
them. Different forms of leasing are permissible, including those where part of the instalment payment goes
toward the final purchase. This might be used to help you buy a car or other item, or to help a business buy
equipment.
Murabaha works by the bank supplying goods for resale to the customer at a price that includes a margin
above the costs, and allows them to repay in installments. This might be used to provide a mortgage on a
property. The property is registered to the buyer from the start.
Musharaka is a joint venture in which the customer and bank contribute funding to an investment or
purchase and agree to share the returns (as well as the risks) in proportions agreed in advance.
Wakala is an agreement that the bank will work as the individual's agent. If a saver enters into this type of
agreement, the bank can use their cash to invest in sharia-compliant trading activities to generate a target
profit for them.

Q.4.Despite surge in popularity of commodity and currency fund dealing why are Muslim investors unable
to invest in them?


Despite surge in popularity of commodity and currency fund dealing why are Muslim investors unable to
invest in them because dealing in forward and future contracts - used to achieve performance is probhited.
However many Muslims believe that commodities will benefit largely from the next upswing in the
economy.



Q.5.Name FIVE prominent Sukuk issues with their characteristics.

a) Pure Ijarah Sukuk-These certificates are issued on stand-alone assets identified on the balance sheet. The
assets can be parcels of land to be leased or leased equipment such as aircrafts and ships. The rental rates of
returns on these Sukuk can be both fixed and floating depending on the particular originator.

b) Hybrid/Pooled Sukuk-The underlying pool of assets can comprise of Istisna, Murabahah receivables
as well as Ijarah. Indeed, having a portfolio of assets comprising of different classes allows for a greater
mobilization of funds as previously inaccessible Murabaha and Istisna assets can comprise a portfolio.

c) Variable Rate Redeemable Sukuk-The above mentioned two types of Sukuk would partially represent the
strength of the issuers balance sheet.Already, several corporate entities refer to these Sukuk as
Musharakah Term Finance Certificates (MTFCs). This can be considered as an alternative to Sukuk because of
its seniority to the issuers equity, its redeeming nature and its relatively stable rate as compared to dividend
payouts, MTFCs have a few advantages. First, employing Musharakah returns is prefeffed from the
viewpoint of jurists as such an arrangement would strengthen the paradigm of Islamic banking that
considers partnership contracts as the embodiment of core ideals. Secondly, the, floating rate of return on
these certificates would not depend on benchmarking with market references such as LIBOR but would
instead be contingent on the finns balance sheet actualities.

d) Zero-coupon non-tradable Sukuk -Another possible classification of Sukuk structures can be created
where the assets to be mobilized do not exist yet. Consequently, the objective of the fund mobilization
would be to create more assets on the balance sheet of company through Istisna. However, certificates of
this nature would not readily be tradable because of Shariah restrictions. The certificate on these debt
arrangements can be termed as fixed rate zero coupon Sukuk.

e) Embedded Sukuk - These could be Sukuk whether zero-coupon, pure-Ijara or hybrid, with the
embedded option to convert into other asset forms depending on specified conditions.


SECTION THREE Questions 5 X Marks 5 = 25 Marks

Q.1.Name the types of Mutual Funds with their brief characteristics.

TYPES OF MUTUAL FUND SCHEMES are :

By Structure

Open -Ended Schemes - The concept of these funds is that the investors are free to enter and exit the
scheme at any point of time during the fund period.
Close - Ended Schemes - In the case of Close-Ended Funds, the investors have to lock their funds with the
trust for a particular period of time as specified by the terms of the offer.
Interval Schemes

By Investment Objectives

Growth Schemes - Growth funds concentrate on stocks that are expected to show long-term growth (also
known as capital appreciation).
Income Schemes - Unlike growth funds, income funds seek to maximize immediate returns, rather than
long-term growth.
Balanced Schemes
Money Market Schemes

Other Schemes
Tax Saving Schemes
Special SchemesIndex SchemesSector Specific Schemes

Objective-Oriented Funds
Growth Funds
Aggressive Growth Funds
Income Funds
Balanced Funds

Market-Oriented Funds
Sector Funds - Sector funds specialize in the stocks of a particular industry, like technology,
telecommunications, consumer goods, etc.
Bond Funds
Index Funds
Money Market Funds
Other Types of Funds


Q.2.Present a short write up on HODEIDAH Micro finance program of Yemen.

The Yemen Hodeidah microfinance program was launched in 1997 and funded by grants from the Yemen
Social Fund for Development. It uses "murabaha" and is based on a group lending approach. The program
purchases the goods and resells them to the borrower with a mark up who repays in equal installments. The
final installment being the service charge plus remaining principal as earlier payments are only for the
principal. The implicit service charge is higher than what commercial banks charge. There is no penalty in
case of late payment, except for fees and transportation costs charged for legal follow up. The program may
have suffered from high transaction costs and contract
Servicing performance.

Q.3.What are Mutual Funds?

Mutual Funds are groups of stocks and other investment instruments managed by professionals and pooling
money from thousands of Investors and leveraging the aggregate amount of the pooled money in buying
stocks and bonds.The main difference between the Conventional Mutual Fund and Islamic Mutual
Fund is that Islam prohibits from Investing in Debt Fund.

Q.4.How are Sukuk helpful to Islamic Investors?

Sukuk are helpful to Inslamic Investors in following ways:

They are tradable Shariah-compliant capital market products providing medium to long-term fixed
or variable rates of return.

The credit quality of Sukuk instruments is assessed and rated by international rating agencies, which
investors use as a guideline to assess risk/return parameters of a Sukuk issue.

They are characterised by regular periodic income streams during the investment period with easy
and efficient settlement and also provide the possibility of capital appreciation of the Sukuk.

The existence of a secondary market provides liquidity to the Sukuk instruments.

Q.5.In Islamic Private Equity most Capital Protected Funds utilize two investment mechanisms to achieve the
required investment objective What are they?

In Islamic Private Equity capital-protected funds utilise two investment mechanisms to achieve the required
investment objective:

(i) Murabaha (cost plus finance) instrument which involves the investment of the bulk of the monies raised
from investors in a fixed-term commodity trade transaction or a series of such transactions.

(ii) a Bai Al-Arboon (a Shariaa alternative to call options) transaction in which the fund invests a small
percentage (for example 5 to 10 per cent) of the monies raised from the investors to purchase an option
over a basket or portfolio of Shariaa-compliant shares or commodities.




SECTION FOUR Questions 5 X Marks 5 = 25 Marks

Q.1.Describe the main characteristics of The Tabreed 2009 -11, NIG Sukuk Ltd, Kuwait and Abu Dhabi Islamic
Bank, 2011 Sukuk.

Tabreeds five-year global corporate Sukuk (on behalf of the National CentralCooling Company, UAE)
provided a fixed coupon of 5.50%. It is a combination of Ijarah Istisna and Ijarah Mawsufah fi al dhimmah
(or forward leasing contracts). The issue was launched to raise funds to retire some existing debt, which
totals around US$136 million, as well as to finance expansion.

The Tabreed 2009 and 2011 issues continued to attract investor interest as of April; however, lack of
supply has hampered secondary market trading. The 2009 issue is seen as more attractive relative to the
2011 issue, especially with the view of a benign US$ interest-rate environment. According to reports,
Barclays has a combined average daily trading volume of US$23m in Nakheel and PCFC, which is impressive
in a market that is regularly quoted as illiquid! The Dubai Global Sukuk (underlying obligor),
Department of Civil Aviation (DCA) matures in November 2009 and, in April, had a mid-market price of
Libor+25bp. A DCA-issued syndicated ijara facility (maturing April 2009) in April was priced at around
Libor+38bp. Long-term holders of the Dubai Global sukuk can switch out of the sukuk and into the DCA
facility for a 13bps pick-up, should investment liquidity not be paramount.
Q.2.Mention a few reasons why investors outsource their investment.

There are four reasons why the investors try to avoid from evaluating the investment by their own;

a) Fiduciary responsibilities - There are some people who have surplus money. They have an intention
to invest their money but they do not have enough time to invest their money by their own. They are the
people who have expertise in managing the money. However, they have other priorities to do.
b) Lack of time - This is the second group of investor who frequently seek outside assistance. He or she
does not have enough time to manage the investment activities. Although they are the people who may do
the excellent job but the time constraint limit them fromdoing so.
c) Lack of interest - This is the third group of investor who simply lack the interest to actively manage
their own investment. As an example, upon retiring, many people choose to enjoy their time by traveling,
recreation, family, friends, and other activities. At this time the income becomes the secondary motive of
their life.
d) Inability to control emotions - For the investors who fail to control their emotions are most in need
of an outside advisor. This is because an emotion plays important role in controlling the activity of a person.
The investors may do the wrong doing if they make the decision based on their emotion.
e) Insufficient knowledge - An investor is the outsider who has surplus money but not necessary he or
she must have sufficient knowledge. However in recent situation, knowledge becomes a main pillar in
investment. This is due to the complexity of the transaction.

Q.3.How do investors share profit in Islamic Mutual Funds? What are their modes of investments?

In Islamic fund investment, the profit and shares is distributed based on modes of investment agreed by the
investors; among the modes of investment are Ijarah fund, equity fund, commodity fund, murabahah fund,
mixed fund and many more.

Q.4.What is the important function of Islamic Finance as described by Mirakhorm2002 in Islamic Micro
finance?
An important function of Islamic finance that is seldom noted is the ability of Islamic finance to provide
the vehicle for financial and economic empowerment to convert dead capital into income generating
assets to financially and economically empower the poor (Mirakhorm2002). Financial system based on
Islamic principles is concerned with much more than just refraining from charging interest.

Q.5.What are Muzara certificates? Who is the issuer? Subscriber? How are mobilized funds used and what
are the holders entitled to?

These are documents of equal value issued for the sake of using the mobilized funds in financing a Muzaraa
contract. The certificate holders become entitled to a share in the crop as per agreement. Issuer: is the
landlord. Subscribers are: farmers who invest on the basis of Muzaraa contract. Mobilized Funds: are the
cultivation cost. Certificate Holders: are entitled to a share of the produce of the land as per agreement.







SECTION FIVE Questions 5 X Marks 5 = 25 Marks

Q.1.What are the qualities of Sukuk which appeal to Islamic investors?

Sukuk appeal to Inslamic Investors in following ways:

They are tradable Shariah-compliant capital market products providing medium to long-term fixed
or variable rates of return.

The credit quality of Sukuk instruments is assessed and rated by international rating agencies, which
investors use as a guideline to assess risk/return parameters of a Sukuk issue.

They are characterised by regular periodic income streams during the investment period with easy
and efficient settlement and also provide the possibility of capital appreciation of the Sukuk.

The existence of a secondary market provides liquidity to the Sukuk instruments.


Q.2.In Islamic Micro finance, as practiced in Indonesia how are the clients broadly divided into two
categories?

As practiced in Indonesia, clients may be broadly divided into two categories:

(i) Clients with existing businesses and successful operations for at least two years.
(ii) New entrepreneurs without prior business experience. The vast majority of clients are those with existing
businesses and a good track record; they can be financed through such financial products as murabaha,
musharaka and mudaraba, which involve some form of profit-sharing. New clients without a track record
are considered very risky and represent but a small minority; they can be financed through qardhasan,
soft loans without any charge or profit-sharing. Consumer loans and loans for speculative investments,
which could be ruinous to the borrower, are excluded from the range of permissible purposes of
financing.
Q.3.What are the essential underlying concepts of Sukuk?

The essential underlying concepts of Sukuk are:

a) Transparency and clarity of rights and obligations;

b) Income from securities must be related to the purpose for which the funding is used, and not simply
comprise interest.
c) Securities should be backed by real underlying assets, rather than being simply paper derivatives.

Q.4.Is a non Islamic Bank or a non Muslim permitted to engage in Shariah compliant trading or investing?

A non-Islamic bank or a non-Muslim can engage in trading or investing in a Shariaa-compliant manner.
Unless a financial institution is prohibited for regulatory reasons from doing so, it is well-established that
almost any financial institution is permitted to offer Islamic investment products. In many instances, this
does not require the formation of an independent subsidiary. Typically, a separate department within an
institution can develop and offer Shariaa-compliant products. Some jurisdictions, however, may require that
Islamic banking licenses be independent from conventional licenses, with the obvious result that the banking
industry in such a jurisdiction provides for two parallel systems, namely Islamic and conventional.

Q.5.Describe Istisnaa Certificates with details of issuer, subscriber and to what are the certificate holders
entitled to?

These are documents that carry equal value and are issued with (supplier),the aim of mobilising the funds
required for producing a certain item and the items to be item to be produced on Istisnaa basis are owned
by the certificate holders. Issuer: is the manufacturer. Subscribers are: the buyers of the item to be
produced. Mobilized Funds: are the cost of the item. Certificate Holders: are entitled to the item or the
selling price of the manufactured item.


SECTION SIX Questions 5 X Marks 5 = 25 Marks

Q.1.What are the two types of investments available to investors? Name them.

There are two types of investment available for an investor. They can invest in physical assets and financial
assets. The physical assets are gold, coins, and other tangible assets. Meanwhile, financial assets are stocks,
bonds, mutual fund. Between these two assets, financial assets are preferable to invest. The investment in
the financial assets is more liquid than physical assets. An investor can easily pull out his or her capital in the
financial assets. He or she can sell easily his or hers stock certificate to the other buyers through the
investment agents or stock brokers.


Q.2.Describe Equity as relevant to Shariah Supervision of Islamic Mutual Funds.

Equity represents an investment exposed to all kinds of business risks and sharing in the profits of the
business. It may be of a permanent nature, i.e., redeemable only upon liquidation of the business or earlier
by mutual agreement but not on demand.




Q.3.Briefly outline the origin, structure and functioning of Amanah Ikhtiyar, Malaysia (AIM) in Micro finance.

Malaysia's dominant MFI, Amanah Ikhtiar Malaysia (AIM), was established in 1987. Up to 1998 it made some
103,000 loans and disbursed a total of RM 328 million ($86 million at the current exchange rate,
considerably more if contemporary exchange rates are applied). Some 80 per cent or more of all funds
loaned were for economic purposes, the remainder for 'social' purposes (Sukor 2000). AIM's activities have
been directed almost entirely to the alleviation of poverty among poor Malays. It was set up with a charter
'to disburse small loans on reasonable terms exclusively to the very poor households to finance additional
income-generating activities' (Gibbons and Sukor 1990).


Q.4.What are the three phases that require thorough professional work in Islamic Wealth Management?

The three phases that require thorough professional work in Islamic Wealth Management are 1) proper
acquisition of wealth. 2) Preservation of wealth. 3) Disposal of wealth.

Q.5.What is the purpose of an Islamic Fund and what is the major question?

Islamic fund is an alternative for an Islamic investor. The purpose of this fund is to encourage Muslims to
activate their wealth and avoiding from being idle. As we all know that Islam will penalize idle wealth by the
obligation of zakat payment. The major question is whether the fund is truly complying with the sharia.ah or
not.

SECTION SEVEN Questions 5 X Marks 5 = 25 Marks
Answers to these questions should be ONE or TWO lines ONLY.

Q.1.In the context of Sukuk how are Murabaha and Istisnaa defined?

Murabaha - In this case the issuer of the certificate is the seller of the Murabahah commodity, the subscribers are
the buyers of that commodity, and the realized funds are the purchasing cost of the commodity. The certificate
holders own the Murabahah commodity and are entitled to its final sale price upon the re-sale of the
Commodity. The possibility of having legally acceptable Murabahah-based Sukuk is only feasible in the primary
market. The negotiability of these Sukuk or their trading at the secondary market is not permitted by Shariah,
as the certificates represent a debt owing from the subsequent buyer of the Commodity to the certificate-
holders and such trading amounts to trading in debt on a deferred basis, which will result in Riba.
Despite being debt instruments, the Murabahah Sukuk could be negotiable if they are the smaller part of a
package or a portfolio, the larger part of which is constituted of negotiable instruments such as Mudarabah,
Musharakah, or Ijarah Sukuk. Murabahah Sukuk is popular in Malaysian market due to a more liberal
interpretation of fiqh by Malaysian jurists permitting sale of debt (bai-al-dayn) at a negotiated price.
Steps involved in the structure:
A master agreement is signed between the SPV and the borrower
SPV issues Sukuk to the investors and receive Sukuk proceeds.
SPV buys commodity on spot basis from the commodity supplier.
SPV sells the commodity to the borrower at the spot price plus a profit margin, payable on
installments over an agreed period of time
The borrower sells the commodity to the Commodity buyer on spot basis.
The investors receive the final sale price and profits.
Istisna Sukuk - they are certificates that carry equal value and are issued with the aim of mobilizing the funds
required for producing products that are owned by the certificate holders. The issuer of these certificates is
the manufacturer (supplier/seller), the subscribers are the buyers of the intended product, while the funds
realized from subscription are the cost of the product. The certificate holders own the product and are
entitled to the sale price of the certificates or the sale price of the product sold on the basis of a parallel Istisna, if
any. Istisna Sukuk is quite useful for financing large infrastructure projects. The suitability of Istisna for
financial intermediation is based on the permissibility for the contractor in Istisna to enter into a parallel
Istisna contract with a subcontractor. Thus, a financial institution may undertake the construction of a facility
for a deferred price, and sub contract the actual construction to a specialized firm. Shariah prohibits the sale
of these debt certificates to a third party at any price other than their face value. Clearly such certificates
cannot be traded in the secondary market.
Steps involved in the structure:
SPV issues Sukuk certificates to raise funds for the project.
Sukuk issue proceeds are used to pay the contractor/builder to build and deliver the future project.
Title to assets is transferred to the SPV
Property/project is leased or sold to the end buyer. The end buyer pays monthly instalments
to the SPV.
The returns are distributed among the Sukuk holders.


Q.2.What are the three main types of Islamic Contracts? Name and describe them.

Islamic contracts which are basically divided into three main types are:

1. WA'D (A promise) - In WA'D the promise is unilateral and unconditional (eg. : a demand promissory note)

2. MUWAADA or MU'AHIDA (Bilateral promise) - MUWAADA or MUA'HIDA is a bilateral promise (eg:
Contracts of guarantee, indemnity, and also cover Morabaha and Musharika agreements).

3. AQD (Contract) - An AQD contract (contract involving two parties) with a monetary consideration.

Q.3.In Islamic Micro finance and social responsibility what are the conditions which Islamic Financial
institutions have to abide?

In Islamic Micro finance and social responsibility the conditions which Islamic Financial institutions have to
abide are prohibiting usury (riba), intolerable uncertainty (gharar) and gambling (maysir).

Q.4.Name the different types of documents required in financial transaction.

Types of Document required in financial transaction are as under:

I. Contracts, Morabaha Agreement, Sale Deed, Mosharaka Agreement, Will, Modarabaha Agreement
Release Deed, Ijara Agreement, Genarate, Indemnity, Mortgage Deed

II. Demand Promisory Note - Is a promise made by the person owing money to the person to whom it is
owned to repay the money on demand.

Q.5.What is the main difference between a convention Mutual Fund and an Islamic Mutual Fund?

The main difference between the Conventional Mutual Fund and Islamic Mutual Fund is that Islam prohibits
from Investing in Debt Fund.


SECTION EIGHT Questions 5 X Marks 5 = 25 Marks

Q.1.What is stamping of a document?

Stamping of Document: To be made legally valid in a Court of Law the documents have to be stamped
BEFORE Execution. Stamp papers of different values in printed form are available with stamp vendors who
are authorized to sell the same. Some documents which are regularily used are printed on plain paper and a
special adhesive stamp is affixed on this by the office of Registration of Stamps. Revenue Stamps are usually
affixed on Demand Promissory Notes and receipts when the amount exceeds a particular value of
transaction. An unstamped document is invalid in law understamped document can be regularized by
affixing additional stamps of required stamp duty. Every country has its Law of registration, stamps and their
value.

Q.2.One of the potential benefits of Micro finance is ..Complete the statement.
One of the potential benefits of microfinance in Muslim societies is the empowerment of Muslim women.
While the ability of microfinance institutions to deliver financial services to rural women in gender-
segregated societies is commendable, working with Muslim women is a sensitive issue that often raises
accusations of meddling with social codes.

Q.3.On what concepts are instruments of risk management and insurance in Islamic Micro finance based?

Instruments of risk management and insurance in Islamic microfinance are based on the concept of
guarantee (kafala) and collateral (damanah). In case of financing individuals, guarantee is used as an
alternative to collateral (e.g. kafala or guarantee by two persons is considered adequate by Pakistan-based
Akhuwat) and as a tool to manage the risk of default and delinquency. As stated earlier, in case of financing
groups; mutual guarantee (kafala) is used by almost all microfinance institutions both conventional and
Islamic.

Q.4.What are the basic obligations of Shariah Supervisory Board for Islamic Mutual Funds? What they ensure
and monitor?
a) Portfolio Purification: Fiscal and Moral - Many Muslims are familiar with the practice of purifying their
checking accounts, for example, by simply donating the amounts listed as interest earned to charity. Thus,
our concern from a Shariah perspective is with amounts of money earned by the corporations in which our
Islamic mutual fund has invested; money earned by means deemed unacceptable by Shariah principles and
teachings. Such impure earnings must be quantified and then purified.
Of course, the assumption here is that these are stocks that have cleared the various screens for Shariah
compliance. Thus, the sources of such income might include non operating income from interest-bearing
investments, or earnings from prohibited business activities that are beyond the scope of a companys
primary business.
The responsibility of the Shariah supervisor in this regard is to ensure that all such income is calculated by
the fund, and that a corresponding percentage is deducted from the earnings, passed on to investors
through the dividends, thereby ensuring that these are free of impurities and completely halal. The
methodologies for calculation may differ from fund to fund, or from one.
The second half of the purification equation is what I term moral purification, and I consider it no less
important than the fiscal purification of earnings. When speaking of fiscal purification, the thing that comes
immediately to mind is that we are dealing with an amount of money that has been earned by means we
find unacceptable, and is therefore in need of purification. So, in our haste to put aside the offending
percentage, we often overlook our moral and religious responsibility in the matter. This responsibility is
perhaps best understood in the context of the Quran concept of enjoining the right and prohibiting what is
wrong.
b) Portfolio Selection: Screening Stocks - Undoubtedly, one of the most important functions of a Shariah
Supervisory Board is its scrutiny of equities for compliance with established, Shariah-based criteria. It has
now become common knowledge in regard to the Shari'ah screening of equities, that beyond the
quantitative screening of securities is the highly subjective matter of ethics, and what is socially responsible.
Again, from the perspective of enjoining the good and prohibiting what is wrong, I believe that it is the
responsibility of Shariah Supervisory Boards to work on these issues, even after a fund has licensed to an
investable universe through an index.
A company's ethics, unlike its primary business and capital structure, are highly subjective and not easily
quantified. In considering issues of this nature, it is important that the fund's Shari'ah Supervisory Board
works closely with management on policies and guidelines that will adequately cover these issues. Islamic
investing has much in common with the modem forms of investing known as ethical investing, socially
responsible investing, faith investing, and green investing. Each of these investment sectors, or subsectors,
has much of value to contribute; and each has something in common with the teachings of Islam. It is
therefore important for Shari'ah Supervisory Boards to keep abreast of what is happening in these areas.
The internet is an excellent tool for the purpose of research into these forms of investing, the organizations
that support and implement their principles, and the issues that concern them. Perhaps the most
encouraging thing for Muslim investors to note about the funds that have grown up around these concepts
is that they have been very successful, and that they are the fastest growing sector on the market.
c) Portfolio Monitoring - Beyond selecting stocks is the equally important task of monitoring stocks. In the
business world, there is very little that remains the same. A company with non-operating interest income at
less than five percent for the present quarter may show earnings in excess of fifteen percent for the next.
Obviously, vigilance is required in these matters to ensure that all of the funds holdings remain within the
limits of the prescribed Shariah filters. Again, when a fund is licensed to an index, information of this nature
will be passed on by the index provider as a matter of course. In such cases, the responsibility of the Shariah
supervisor will be to verify the removal of the security from the fund's portfolio. In the case, however, that
the fund is not licensed or otherwise positioned to receive such information, even more vigilance is required.
It is the responsibility of Shariah supervisors to ensure that this sort of vigilance is maintained.
d) Monitoring Management - The Shariah supervisory function includes vigilance in relation to the
management of the Islamic equity fund as well. One of the most important issues in this regard is the funds
cash-to-assets ratio. Fund or portfolio managers may keep a large cash portion on hand if, for example, they
are bearish on the market, or if they are unable to find attractive securities to buy, or, in the case of an index
fund, if they are temporarily unable to purchase the stocks needed to match the index. Of course, the reason
for the concern of the Shariah Supervisory Board under these circumstances is the possibility that idle cash
will lead to interest.
Likewise, Shariah Supervisory Boards must be especially vigilant when, owing to adverse market conditions,
management decides to assume temporary defensive positions. These may occur as the result of political,
economic, or a host of other reasons. The important thing, however, is that the Board ensure that the
strategy does not include recourse to the conventional, knee jerk strategies of moving into high quality,
short term securities and money market instruments, or commercial or agency paper, or T-bills, or CDs. At
such times, it will be best for management to convene a meeting of the Shariah Supervisory Board, or at
least to confer with the members either individually or by whatever other means, for the purpose of
discussing to what lengths the fund may go. Obviously, when such situations occur, it is the expertise of the
portfolio managers and analysts that will determine the defensive strategy. It is the Shariah Supervisory
Board, however, that will determine whether or not that strategy is a lawful one from a Shariah perspective.
Another thing that Shariah supervision will watch for is the purchase of equities on margin. While managers
are aware that such purchases are not permitted, oftentimes their brokers are not. It is for this reason that
Shariah supervisors must be on guard for these sorts of seemingly innocent mistakes.
e) Monitoring Fees - one of the most important of all the different functions performed by a Shariah
Supervisory Board is its ensuring that the consumer is made aware of the funds fees and how these are
structured. Here again, the Shariah Supervisory Board finds itself in the role of consumer advocate. While
there is generally no formal channel for communication (other than quarterly or annual reports) between
the Board and those who invest in the Islamic fund, the responsibility in this regard is not so much consumer
education as it is a matter of the Boards satisfying itself of two essential matters. Firstly, that the fee
structure is a reasonable one and, secondly, that the fees are clearly stated in the funds literature and
otherwise communicated without ambiguity to investors.

f) Monitoring Fund Documentation - Perhaps more than monitoring, this function of a Shariah
Supervisory Board is actually one of assisting management in the preparation of filings for regulatory
agencies like the Securities and Exchange Commission, subscription agreements, private placement
memorandums, fund prospectuses, and the like. Obviously, in the preparation of such documentation
references will have to be made to the Shariah and its interpretations. For this reason, it is essential that the
expertise of Shariah scholars be accommodated. It is clearly of inestimable importance that the documents
which define the Islamic mutual fund and the ways it works are in complete consonance with Shariah
precepts. The only way to ensure this is to have the Shariah Supervisory Board involved in the drafting and
review of all pertinent legal and business documentation.

g) Monitoring the Industry - As academics, the members of Shariah Supervisory Boards will naturally
keep abreast of scholarship in their respective fields and specializations. As professionals, it is equally
essential that we remain informed of developments in the industry we supervise. In order to comprehend
the issues fully, the sorts of issues that require the attention of the Shariah Supervisory Boards, it is
important to understand them in the broader context of the marketplace in general. From this perspective,
the attention brought to bear on the issues by the Board will certainly be more pertinent; with the result
that the Boards decisions will be more informed and ultimately of more value to the investor. This is not to
say that Shariah Supervisory Boards should tell management how to run their business. Rather, what I mean
to say is that a Board that is sensitive to the business environment is an effective Board.


h) Product Development - While the issue of product development is more commonly associated with
Islamic banks, there is nonetheless a certain amount of scope for it in Islamic mutual funds as well. With the
goal of mitigating risk through portfolio diversification, an Islamic fund might consider turning to markets
other than the stock market, or to target other asset classes, like REITS. Or the fund may want to do
something different as a part of a defensive strategy for a bearish market, or as a way to manage short term
liquidity. Whatever the case, there will be a clear need for the expert advice and assistance of the Shariah
Supervisory Board.

i) Regular Reports - Finally, one of the most important functions of a Shariah Supervisory Board is to
prepare reports on the status of the fund it supervises. Such reports are best issued quarterly and should
address issues of Shariah-compliance in the portfolio, and on the part of management. Likewise, the reports
should keep investors informed of the purification process and the charitable ways in which purification
money has been put to use by the fund. Other issues of relevance to the supervision of the fund might also
be mentioned in the reports, like the new software that enables the Board to easily monitor the funds
portfolios, or to screen stocks for Shariah-compliance, and so on. In addition, the Board may use the reports
to communicate the ways in which it is addressing issues related to socially responsible investing and the
business ethics and practices of corporations.

Q.5.Organizations such as FINCA and Muslim Aid have developed certain models Describe them.

Organisations such as FINCA and Muslim Aid have developed models that might be potentially appealing to
Islamic financial institutions as liquid investments. The models have a proven track record of performance
that can be relied on by Islamic financial institutions to extend credit and achieve above-average financial
and social returns.

Muslim Aid implemented a project in Colombo in partnership with Amana Investment to provide micro-
finance to the urban poor. Muslim Aid invested on a mudarabah basis with Amanda Investment, which then
proceeded to manage the micro-finance fund. Amanda Investment disbursed and recovered while Muslim
Aid was responsible for community mobilisation and training and motivating the community to pay back
the loan. A scheme like this could also be operated on a musharaka basis. Loans were given to these small
and medium enterprises on a mudarabah and murabaha basis. The whole principal was recovered.
The same model could potentially be applied on a for-profit basis with a fixed income stream. Micro-finance
loans can be provided to individuals to lease or sell assets, for which they would provide the lease
payments or sale price payments over a period.
FINCA did the same in Afghanistan, utilising conventional funds but providing murabahas to customers to
ensure Shariah compliance. These asset pools could effectively be utilised as the basis for Shariah-
compliant zero coupon sukuk. The sukuk could be marketed primarily to Islamic banks that have surplus
charitable funds available for disbursement. These funds could be returned to the banks at the end or the
period or be utilised in subsequent rounds of investing. When the model establishes a track-record of
performance and stability, it could be categorised as an investment class asset with a strong rating from a
ratings agency and subsequently be marketed to institutional investors and Islamic financial institutions as
part of their performing asset pool. However, the asset manager would still have to oversee the quality of
financing disbursed and the methodology of financing approvals, and monitoring should be audited
continually to ensure performance of the asset pool.



SECTION NINE Questions 2 X Marks 10 = 20 Marks

Q.1.Please presents a profile study of HSBC Amanah from the E Session. - Marks 10

HSBC Amanah Finance enables you to buy your own home - within the framework of Shariah. All the
products in the Amanah range are Shariah compliant, developed in collaboration with experts in Shariah
Law from around the world.
All HSBC Amanah products and transactions are developed in consultation with independent Shariah
scholars and approved by them prior to distribution.
Based on the Diminishing Musharakah method of financing, Amanah Home Finance enables you to buy
your residential property without paying interest. If you already have a traditional interest based
mortgage, you can apply to switch to HSBC Amanah Home Finance. This method of Islamic financing is
generally accepted as being the preferred method of buying your home within the Shariah framework.
It is based on the principles of "partnership" where parties share the ownership and also the risks.
Simply described, we will buy the property jointly with you. The property will be held by a third party,
HSBC Trust Company, who will hold it in trust for us both. During the financing term, as you make
monthly Amanah Home Finance payments, your share in the property will increase as the bank's share
decreases. If you're buying a property for the first time, at the start of the agreement the bank will
typically have a 90% share and you will have a 10% share (assuming you have paid a 10% deposit).
Throughout the term, with each payment made, you will pay the bank rent for use of the bank's share
of the property and acquire an additional share for yourself. Once all payments have been made, you
will own all the shares and the property on your instruction will be transferred into your name.You can
make additional lump sum payment which will enable you to acquire additional shares in the property.
These payments are accepted twice a year, on the 25th of January and July. Minimum lump sum
payment is 5,000 and we will require a month's notice before the above dates to process them.
When you apply for HSBC Amanah Home Finance, we'll look at your application and ask for any further
information we need. As soon as we can, we'll let you know whether your application has been
successful and, if so, how much finance we'll be able to provide. Once you know how much finance is
available, you can start looking for a home to buy. Your budget will be the amount we finance plus the
amount that you are contributing. You choose the property you want to buy and agree the price with the
seller, as you would with any other method of financing a property. Let us know the details of the
property you have chosen and we will arrange for a valuation.
Your legal adviser (usually a solicitor) will be sent the legal documents and will explain these to you. You'll
then be asked to sign the Amanah Home Finance letter and other documents. There are some slight
differences in the way you exchange contracts and complete on the property. These differences ensure
that the property is suitable to be put in trust between us, and make sure that all the necessary consents
are given so that a tenancy agreement can be set up between us for the duration of the finance.
We know that you probably won't have been through this process before, and our highly trained team is
available to answer any questions that you might have. You should also ask your legal adviser any
questions you have about the paperwork that we send to them.
A date will be agreed for completion. This is when the trust will be set up and the property let to you, so
you can move in. Our solicitor will register ownership of the property and the Trust Deed, and your legal
adviser will register ownership of tenancy in your name. Monthly payments need be made for the term
of your tenancy. The payments will be made on the 25th of every month, and will be collected from your
account by Direct Debit.
Your payment will comprise: rent, contribution payment and any other sums payable for a leasehold
property (such as service charge, ground rent and landlord's buildings insurance cover). At the end of the
agreed term, provided you have made all the contribution payments, the property will be transferred
into your name. You can have the property transferred to you before the end of the agreement, if you are
able to fully purchase the bank's share in the property.
Switching from a mortgage
As well as home purchase, you can also switch from a traditional interest based mortgage or another
Islamic home financing product to Amanah Home Finance. The process is much the same as for buying
a home, except the finance agreed is used to repay your existing mortgage and the legal title to the
property is transferred to HSBC Trust Company.
Properties that qualify
Amanah Home Finance is now available for all freehold and leasehold domestic residential properties,
including flats and maisonettes. If the property you want to buy is leasehold then it needs to have an
unexpired lease term of at least 50 years plus the term of the financing. Also, for leasehold properties,
the landlord's consent will be required, for us to let the property to you.
Once we have agreed your finance and you have agreed a price with the vendor, we'll arrange a survey
of the property. There are various types of survey available, which vary in how detailed they are and the
price charged. Your Amanah representative or the Amanah helpdesk can talk you through the options.
Buildings insurance
Buildings insurance needs to be maintained throughout the tenancy to protect your and our
interest in the property. This can either be arranged by you if you prefer to arrange it yourself, or
by us. If we arrange buildings insurance for you, the cost of insurance premiums will simply be
added to your monthly Amanah Home Finance payments. We offer a Shariah compliant alternative
to traditional insurance. Home Takaful is available to cover buildings, contents and personal
possessions. For a quote and to arrange cover, call our specialist team on 0800 1694 786. If you
choose to arrange it yourself, the policy needs to be with a reputable insurer and cover all the usual
risks covered by a standard buildings insurance policy.

Finance Fees
We charge an application fee for HSBC Amanah Home Finance, which is solely used to cover the cost
of our legal fees in purchasing the property. You will also need to pay the cost of the valuation, as
described previously. We don't levy any other fees or charges associated with your HSBC Amanah
Home Finance application. A full list of Amanah Charges is contained in the Amanah Price List and is
available for you in designated Amanah branches - just ask one of our team for a copy.


Q.2.Highlight the characteristic features of Taurus Ethical Fund. - Marks 10
Taurus Ethical Fund from Taurus Mutual Fund is India's First Actively Managed Equity Oriented
Shariah Compliant Diversified Fund. The investments in this fund are based on the fundamentals of
Shariah or Shariat, which are guided by the Islamic investment philosophy which invests in
companies based on certain screening norms. Managed by seasoned Investment Professionals from
Taurus Mutual Fund.
Taurus Ethical Fund is an Open Ended Equity Oriented Scheme that will invest in companies which
are in compliance with the Shariah norms. The scheme will primarily invest in Equity and Equity
related instruments. The fund is Actively Managed and invests in diversified portfolios. Investment
Objective of tauras fund is to provide capital appreciation and income distribution to unitholders
through investment in a diversified portfolio of equities, which are based on the principles of
Shariah.
Investment strategy - The corpus of the Scheme will be invested in the companies which are based
on the principles of Shariah whereby, it is not permissible to acquire the shares of Companies
providing financial services on interest like conventional banks, insurance companies or the
companies involved in some other business not approved by Shariah, such as companies
manufacturing, selling or offering liquors, meat, or involved in gambling, night club activities,
pornography etc. The Fund Manager and his team will identify the stocks for investment from the
stock universe available from CNX 500 Shariah which is the benchmark index for this scheme.
Features of Taurus Ethical Fund -

1st Actively Managed Shariah Compliant Fund in India

Will invest only in Listed Indian Stocks

Uses CNX Shariah 500 Index as the Benchmark Index

The Fund allows a socially responsible form of investing and offers adequate diversification

The Fund follows diligent and disciplined investment process with adequate risk controls

Reasons for investing in Taurus Ethical Fund -

First-time opportunity for the discerning investor

Managed by a professional investment team and back tested for performance

Large universe of Shariah compliant stocks

Actively Managed Fund

The fund is also open for subscription to specific overseas investors

Repurchase of units by the scheme

Investors in this fund - Investors looking for suitable investment opportunities that
comply with Shariah norms should look to invest in the Taurus Ethical fund with a
Medium to Long term investment horizon. It is a socially responsible form of investing. It
is a suitable form of investing for people opposed to alcohol, gambling and other
addictions. 500 Shariah Index will be used as the benchmark for comparing the
performance of this Scheme.

Shariah screening process - Stocks will be screened using two main criteria - Sector based
screens and Accounting based screens. Companies that are found to be non-shariah
compliant are screened out. Accounting based screens involve studying the structure of
the business under 3 aspects - Leverage Compliance, Receivables & Cash Compliance and
Revenue Share from Non-Compliant Activities.

Sectors are excluded - Banks and financials are excluded. Business activities related to
Pork, Alcohol, Gambling, Pornography, Tobacco etc are also excluded.

Bench mark index for this fund - The benchmark for Taurus Ethical fund is CNX Shariah
500 Index. The indices have a base date of 1st January, 2007 with history back to that
date, as well

Taurus Ethical Fund different from other Shariah Funds -

Taurus Ethical Fund is the first Actively Managed Shariah Compliant Equity Fund in
India.

Taurus Ethical Fund is the only actively managed Shariah Compliant Fund in India,
which gives it the possibility to outperform the benchmark index - CNX Shariah 500
Index

This fund does not require a Demat account for investment.

Taurus Mutual Fund will repurchase the units, when an investor wants to redeem
their units.








SECTION TEN 10 Marks
Match the following:

Al-Wadiah(6) 1. Irrigation certificates

Objective-oriented funds(5) 2. Aggressive,

moderate SUKUK(9) 3. Term used in Private Equity, Mutual Funds and Sukuk.

Hadith compiled by Muslim(4) 4. Kitab al Musaqat

Market oriented funds(10) 5. Growth funds

Essential underlying concept of SUKUK(8) 6. Safe keeping

Types of investors in a Mutual Fund(2) 7. Professional management

Advantages of investment in a Mutual Fund(7) 8. Transparency and clarity of rights

Musaqa(1) 9. Islamic bond

Leverage(3) 10. Sector funds





























SECTION ELEVEN 10 Marks
Fill up the blanks:

1. The two types of assets available to an investor are physical assets and financial assets.

2. Mutual Funds can be broadly classified into three categories By Structure , By Investment
Objectives and Other Schemes.

3. Three types of Sukuk are Pure Ijarah Sukuk, Hybrid/Pooled Sukuk and Variable Rate Redeemable
Sukuk.

4. The leverage ratio of total debt of Target Company should be 33%.

5. Two important Shariah Compliant investment mechanisms are a Murabaha (cost plus finance) and
Bai Al-Arboon (a Shariaa alternative to call options).

6. Wealth can be both beneficial (Arabic: NEMAH) and detrimental (Arabic: NIQMAH).

7. Viable Models of Islamic Micro finance operate through sale contracts such as murabaha and musawama

8. Islamic Wealth Management deals with certain fast emerging fields like HIBA (Gift), WAQF and Al
Faraiz (Inheritance).

9. Sponsor of a Venture Capital Fund can act as a Mudareb under a Mudaraba arrangement or a Wakeel
under a Wakala (agency) arrangement, or an investment manager pursuant to an investment
management agreement.

10. Sukuks, referred to as Islamic Bonds are better described as Islamic investment certificates.
























SECTION TWELVE 10 Marks
State whether the following are TRUE OR FALSE:

1. Non operating interest income of a target company can exceed 5% of total income. (false )

2. A non Muslim or a non Islamic Bank can engage in trading or Investing in Shariah Compliant
investments. (true )

3. Money can be kept safe to protect its purchasing power over time. (false )

4. Sukuks are non tradable Shariah Compliant Capital Market products. (false )

5. Conventional Micro finance offers greater resilience than Islamic Micro finance. (false )

6. Conventional Micro finance is not for the poorest of the poor. (true )

7. Waqf is a form of perpetual charity that entails the use of assets Such as cash, land etc. (true )

8. An investor has to intensify his investment in various types of businesses. ( false)

9. Mutual funds do not incur huge costs in fees and commission. (false )

10.Sukuk should not simply be regarded as a substitute for conventional Interest based securities. ( true)