Chapter – 7

ISLAMIC BONDS
True / False Questions

1. Sukuk is an Arabic term for financial certificate, and is the Islamic equivalent
of a bond (asset-backed instruments).
Answer: True
Diff: 1
Page Ref: 257
LO: 1

2. The AAOIFI defines sukuk as “certificates that represent the holder’s

proportionate ownership in an undivided part of an underlying asset where the
holder assumes all rights and obligations to such asset.”
Answer: False
Diff: 2
Page Ref:
LO: 1

3. It is not a condition for sukuk holders to have interest or ownership in the

underlying asset.
Answer: False
Diff: 2
Page Ref: 257
LO: 1

4. Sukuk are singled as the best way of financing small enterprises.

Answer: False
Diff: 1
Page Ref: 259
LO: 1

5. The process of modelling and structuring Islamic bonds requires a basic

knowledge of the major Islamic finance products such as mudarabah,
musharakah, ijarah, murabahah, wakalah, istisna’a.
Answer: True
Diff: 1
Page Ref: 262
LO: 2

6. There is only one type of sukuk regardless of the types of Islamic finance
products used in their structuring.
Answer: False

Diff: 2
Page Ref: 263
LO: 2
7. Mudarabah sukuk are usually structured as an agreement between the rabb al-
mal who provides the capital and the entrepreneur which may be an
investment company or a Special Purpose Vehicle (SPV).
Answer: True
Diff: 2
Page Ref: 265
LO: 2

8. Risk mitigation in mudarabah sukuk is achieved through the process of

reinsurance.
Answer: False
Diff: 3
Page Ref: 265
LO: 2

9. The mudarabah sukuk holder is given the right to transfer the ownership by
selling the sukuk in the securities market at his/her discretion.
Answer: True
Diff: 2
Page Ref:266
LO: 2

10. The manager/ Special Purpose Vehicle (SPV) who receives the funds collected
from the subscribers to mudarabah sukuk can also invest his/her own funds.
Answer: True
Diff: 1
Page Ref: 267
LO: 2

11. It is not permissible under mudarabah sukuk agreement to create reserves for
contingencies, such as loss of capital, by deducting from the profit a certain
percentage in each accounting period.
Answer: False
Diff: 3
Page Ref: 267
LO: 2

12. The returns and losses on mudarabah sukuk are shared and borne in
accordance with the percentage of ownership of shares of each of the sukuk
holders.
Answer: False
Diff: 3
Page Ref: 268
LO: 2

13. The musharakah certificates are treated as nonnegotiable instruments that

cannot be bought and sold in the capital markets.
Answer: False
Diff: 3
Page Ref: 268
 LO: 2

14. The musharakah certificate given to all sukuk holders represent their
proportion of ownership in the assets of the project being undertaken.
Answer: True
Diff: 1
Page Ref: 268
LO: 2

15. Under musharakah sukuk agreement, management of the business is the sole
responsibility of the entrepreneur.
Answer: False
Diff: 2
Page Ref: 270
LO: 2

16. The contract of ijarah has been used as a means of securitization of a tangible
asset such as a hospital or airport which allows the issuance of sukuk to
prospective investors.
Answer: True
Diff: 2
Page Ref: 272
LO: 2

17. The contract of ijarah has been structured in a manner that would allow for the
financing of short term small projects.
Answer: False
Diff: 2
Page Ref: 272
LO: 2

18. The holder of sukuk of ownership of services may not sublease such services
to a third party.
Answer: False
Diff: 2
Page Ref: 272
LO: 2

19. Islamic International Rating Agency (IIRA) has issued investment sukuk
standards which comprise of the definition, types, and characteristics of
investment sukuk (Standard No. 17).
Answer: False
Diff: 2
Page Ref: 274
LO: 3
 20. AAOIFI standards contain the Sharī‘ah rulings and requirements on the
different types of sukuk as well as the prevailing practices in the secondary
markets.
Answer: True
Diff: 2
Page Ref: 274
LO: 3

21. The focus of the AAOIFI standards is the Islamic financial institutions or
corporate entities offering Islamic financial services such as sukuk.
Answer: True
Diff: 2
Page Ref: 274
LO: 3

22. The AAOIFI investment sukuk standards do extend to shares of stock

companies, certificates of funds, and investment portfolios.
Answer: False
Diff: 2
Page Ref: 274
LO: 3

23. The owners of the investment sukuk certificates share the return and bear no
losses of the business venture.
Answer: False
Diff: 1
Page Ref: 275
LO: 3

24. The Sharī‘ah rules and requirements as contained in the AAOIFI Standards of
sukuk are classified into (i) Sharī‘ah requirements in the issuance of
investment sukuk, and (ii) Sharī‘ah rules in trading in investment sukuk.
Answer:True
Diff:2
PageRef:275
LO: 3

25. The Sharī‘ah rules for trading in investment sukuk include the structuring and
classifications of the 16 different types of investment sukuk.
Answer: False
Diff: 1
Page Ref: 275
LO: 3
 26. The designated grades for credit rating range from ‘AAA’ which is considered
as the lowest grade to ‘C’.
Answer: False
Diff: 1
Page Ref: 279
LO: 4

27. A key advantage of credit rating is that it allows potential investors to make
informed decisions before subscribing to debt securities.
Answer: True
Diff: 2
Page Ref: 279
LO: 4

28. The Islamic International Rating Agency (IIRA) which began operations in
2009 has since been striving to ensure the expansion of the Islamic finance
industry.
Answer: False
Diff: 2
Page Ref: 279
LO: 4

29. Islamic bonds can be rated on two bases: sovereign rating and country rating.
Answer: False
Diff: 1
Page Ref: 279
LO: 4

30. The risk level of the regulatory, political, economic and legal atmosphere
comprises a minimal factor in sovereign credit ratings.
Answer: False
Diff: 1
Page Ref: 279
LO: 4

31. Sovereign credit ratings are key features considered by foreign investors when
intending to invest abroad.
Answer: True
Diff: 1
Page Ref: 279
LO: 4

32. Corporate credit rating affects both the issuer and the issues.
Answer: True
Diff: 1
Page Ref: 283
LO: 4
 33. The general rating of a country as a sovereign entity is carried out before the
rating of particular issue or institution.
Answer: True
Diff: 1
Page Ref: 283
LO: 4

34. Issuer rating has no impact on the credibility of the rated corporate entity.
Answer: False
Diff: 1
Page Ref: 284
LO: 4

35. The rating products in Islamic financial markets cover among others: bond/
sukuk ratings, bank’s financial strength ratings, and Sharī‘ah quality ratings.
Answer: True
Diff: 2
Page Ref: 283
LO: 4

36. The IIRA identified ‘sovereign ratings’ and ‘risk level ratings’ to be among
the eight major rating products in Islamic financial markets.
Answer: False
Diff: 2
Page Ref: 283
LO: 4

37. ‘Insurer financial strength ratings’ and ‘banks financial strength ratings’ are
among the eight major rating products in Islamic financial markets as
identified by IIRA.
Answer: True
Diff: 2
Page Ref: 283
LO: 4

38. The methodology adopted in the ratings of sovereign sukuk is purely

qualitative.
Answer: False
Diff: 3
Page Ref: 284
LO: 4

.The insurer ratings consider qualitative as well as quantitative factors .39

Answer: True
Diff: 2
 Page Ref: 284
LO: 4

The rating of sukuk in the financial market is more important to the investors .40
than to the issuer. .
Answer: False
Diff: 2
Page Ref: 284
LO: 4

41. IIRA adopts global financial practices in rating both the Islamic and
conventional financial institutions.
Answer: True
Diff: 2
Page Ref: 284
LO: 4

42. Banks financial strength ratings place emphasis on the ability of financial
institutions to make profits and pay dividends.
Answer: True
Diff: 1
Page Ref: 285
LO: 4

43. The Sharī‘ah quality rating aims at informing the investing public on the level
of compliance of certain corporate entities with the requirements of the
Sharī‘ah.
Answer: True
Diff: 1
Page Ref: 285
LO: 4

44. Best practices in the corporate governance rating of corporate entities are used
as benchmarks for the assessment rather than using the standards of particular
country or jurisdiction.
Answer: True
Diff: 3
Page Ref: 285
LO: 4

45. IIRA’s rating on real estate pertains to the rating of the individual projects
rather than to the overall rating of the developer.
Answer: False
Diff: 3
Page Ref: 286
LO: 4

46. The IIRA has two major categories of rating symbols: the international scale
ratings and the regional scale ratings.
 Answer: False
Diff:
Page Ref:
LO:

______________________________________________

Multiple Choices Questions

are certificates of equal value representing undivided shares in the ____________ .1
ownership of tangible assets, usufructs and services or (in the ownership of) the assets
.of particular projects or special investment activity
a) alternative investments
b) Sukuk
c) Islamic stocks
d) charitable endowments
Diff: 2
Page Ref: 257
LO: 1

2. All the followings are benefits of sukuk EXCEPT:

a) sukuk is among the best ways of financing large enterprises
b) sukuk represent an excellent way of managing liquidity for banks and Islamic
financial institutions
c) sukuk enable investors to deploy small sums of capital without the ability to
liquidate their positions easily whenever the need should arises
d) sukuk are a means for the equitable distribution of wealth
Diff: 2
Page Ref: 259
LO: 1

3. Sukuk have been generally classified as:

a) tradable and non-tradable
b) short term and long term
c) debt based and equity based
d) A and C
Diff: 2
Page Ref: 263 - 264
LO: 2
4. The most common tradeable investment sukuk in use are
a) sukuk al-mudarabah
b) sukuk al-ijarah
c) sukuk al-salam
d) a and b
Diff: 2
Page Ref: 264
LO: 2

5. Trust Investment Bonds are also known as ________________.

a) sukuk al-mudarabah
b) sukuk al-mushrakah
c) sukuk ali-jarah
d) none of the above
Diff: 2
Page Ref: 264
LO: 2

6. The following rules are valid and must be followed when selling mudarabah sukuk
EXCEPT:
a) if the mudarabah capital is in the form of money, the trading of mudarabah
sukuk will be like the exchange of money for money and it must satisfy the rules of
bai‘ al Sarf
b) if the mudarabah capital is in the form of debt, it must be based on the principles
of debt trading in Islamic jurisprudence
c) mudarabah capital cannot be a combination of more than two types of
capital such as cash, receivables, goods, real assets and benefits
d) none of the above
Diff: 3
Page Ref: 266 - 267
LO: 2

7. Musharakah sukuk can be used for the mobilization of funds that can be used:
a) for new project
b) to develop an existing project
c) to finance a huge business activity based on joint venture contracts
d) all of the above
Diff: 2
Page Ref: 268
LO: 2
8. ______________ has been structured in a manner that would allow for the
mobilisation of funds for the development of long term infrastructure projects.
a) the contract of ijarah
b) the contract of musharakah
c) the contract of wakalah
d) the contract of mudarabah
Diff: 2
Page Ref: 270
LO: 2

9. Which of the following is not a form of ijarah sukuk?

a) sukuk of ownership in leased assets
b) sukuk of ownership of usufructs of assets
c) sukuk of ownership of services
d) sukuk of ownership in leased with option to buy assets
Diff: 3
Page Ref: 272
LO: 2

10. ____________is issued with aim of conferring the right of usufruct in the sukuk
holders where they become joint owners.
a) sukuk of ownership in leased assets
b) sukuk of ownership of usufructs of leased assets
c) sukuk of ownership of usufructs of assets
d) sukuk of ownership of services
Diff: 2
Page Ref: 272
LO: 2

11. This form of ijarah sukuk is issued to subscribers for the purpose of conferring the
ownership in such services to the sukuk holders:
a) sukuk of ownership in leased assets
b) sukuk of ownership of services
c) sukuk of ownership of usufructs of assets
d) none of the above
Diff: 1
Page Ref: 272
LO: 2
12. The following statements regarding the AAOIFI Standards on Islamic Bonds are
true EXCEPT:
a) the standards contain the Sharī‘ah rulings and requirements on the different types
of sukuk as well as the prevailing practices in the secondary markets
b) the scope of the investment sukuk is clearly specified with the enumeration of the
fourteen types of Sukuk structures (Table 7.2 of the textbook)
c) the AAOIFI investment sukuk standards are extended to shares of stock
companies, certificates of funds and investment portfolios
d) the focus of the standards is the Islamic financial institutions or corporate entities
offering Islamic financial services such as sukuk
Diff: 3
Page Ref: 274
LO: 3

13. The following Sharī‘ah requirement(s) must be observed in the process of

issuance of investment sukuk:
a) it is not permissible to issue investment certificates, on the basis of any of
Sharī‘ah-compliant investment contracts
b) it is permissible to issue securities for trading in tangible assets, usufructs, or
services
c) the contract of issue must be governed, after closing date and allocation of the
certificates, by the interpretation of the issuer
d) the two parties of the contract of issue are the issuer and the management
Diff: 3
Page Ref: 275
LO: 3

14. Which of the following statements regarding rating agencies is/are true?
a) there are over 50 rating agencies that have been established across the world.
b) the leading global rating agencies include Moody's, Standard & Poor's, and Fitch
Rating.
c) the Islamic Development Bank (IDB) took the initiative to establish an
international rating agency known as the Islamic International Rating Agency (IIRA).
d) all of the above
Diff: 3
Page Ref: 279
LO: 4

15. The two popular classifications of bonds while rating their quality are:
a) ‘investment grade bonds’ and ‘junk bonds’.
b) ‘sovereign grade bonds’ and ‘corporate bonds’
c) ‘investment grade bonds’ and ‘sovereign grade bonds’
d) none of the above
Diff: 3
 Page Ref: 279
LO: 4

16. Islamic bonds can be rated on two bases:

a) long term and short-term
b) sovereign and corporate
c) public and private
d) none of the above
Diff: 2
Page Ref: 279
LO: 4

17. Which of the following factors is not considered by ‘Euromoney Country Risks’
as essential in the ranking of countries by risk?
a) political risk
b) economic performance/projections
c) structural assessment
d) all of the above
Diff: 2
Page Ref: 281
LO: 4

18. Which of the following factors is considered by ‘Euromoney Country Risks’ as

essential in the ranking of countries by risk?
a) debt indicator and credit ratings
b) access to bank finance
c) access to capital markets
d) all of the above
Diff: 2
Page Ref: 281
LO: 4

19. The followings are basic categories used by IIRA in analysing sovereign sukuk
and the likelihood of any default on debt obligations at maturity EXCEPT:
a) politics and policy continuity
b) accessibility to capital markets
c) the economy –structure and growth prospects
d) budgetary and fiscal policy
Diff: 3
Page Ref: 281
LO: 4

20. Which of the following categories are used by IIRA in analysing sovereign sukuk
and the likelihood of any default on debt obligations at maturity?
a) monetary policy and flexibility
b) the external accounts
c) internal and external debt
d) all of the above
Diff: 3
Page Ref: 281
 LO: 4
21. _______________ promote stability and sustainability in the financial industry.
a) corporate credit ratings
b) sovereign credit ratings
c) country risk ratings
d) credit ratings
Diff: 3
Page Ref: 283
LO: 4

22. In order for corporate entities to win the confidence of prospective investors, they
must:
a) reduce their risk level
b) demonstrate their ability to meet all financial obligations
c) offer their employees generous compensation packages
d) a and b
Diff: 1
Page Ref: 283
LO: 4

23. Corporate ratings in the Islamic financial markets involve:

a) bank’s financial strength ratings
b) Sharī‘ah quality ratings
c) corporate governance ratings
d) all of the above
Diff: 2
Page Ref: 283
LO: 4

24. _________________ comprises issuer and issue ratings where a reliable third
party gives an opinion on the feasibility of the repayment of the issuer or an issue of
its financial obligations within the record time.
a) issuer ratings
b) bond/sukuk ratings
c) sovereign ratings
d) Sharī‘ah quality ratings
Diff: 3
Page Ref: 283
LO: 4

25. The ratings of the issuer of sukuk places particular emphasis on:
a) the level of compliance of certain corporate entities with the requirements of the
Sharī‘ah.
b) the investment quality and/or credit worthiness
c) the issuer continued ability to fulfil its debt obligations to the stakeholders
particularly the investors
d) all of the above
Diff: 3
Page Ref: 284
 LO: 4

26. Quantitatively, the strength of the balance sheet of the company and its operating
performance are methodically evaluated when instigating
a) issuer ratings
b) insurer financial strength ratings
c) corporate governance ratings
d) real estate ratings
Diff: 3
Page Ref: 284
LO: 4

:The main issue considered in the banks’ financial strength ratings is the .27
a) investment quality and/or credit worthiness
b) strength of the balance sheet of the bank
c) operating performance of the bank
d) rate of return on investment
Diff: 3
Page Ref: 284 - 285
LO: 4

28. The key subject headings in IIRA’s asset quality analysis are:
a) banking environment
b) risk management practices
c) lending history and performance
d) all of the above
Diff: 2
Page Ref: 285
LO: 4

29. Which of the following sets of fundamentals are considered in the assessment of
the banks’ financial strength?
a) market assessment
b) liquidity and funds management
c) capital adequacy
d) all of the above
Diff: 2
Page Ref: 285
LO: 4

30. Which of the following is not a set of fundamentals that are considered in the
assessment of the banks’ financial strength?
a) liquidity and funds management
b) asset/liability management
c) number of bank outlets
d) adjustments to achieve economic reality
Diff: 2
Page Ref: 285
LO: 4
31. Assessing the level of compliance of a financial institution or corporate entity
with the requirements of the Sharī‘ah include the following major element(s):
a) corporate governance framework
b) code of ethics adopted by the institution
c) monetary policy and flexibility
d) all of the above
Diff: 3
Page Ref: 285
LO: 4

32. Real estate rating is assigned after taking into account:

a) market characteristics
b) effectiveness of the top management team
c) liquidity and funds management
d) all of the above
Diff: 2
Page Ref: 286
LO: 4

33. The real estate rating methodology designed by IIRA evaluates:

a) all on-going projects of the developer
b) the developer’s activities such as the performance of its architects, engineers, and
contractors
c) the level of fairness, transparency, responsibility and accountability of the
developer
d) a and b
Diff: 3
Page Ref: 286
LO: 4

Short answer questions

Question 1
Discuss briefly the general benefits of sukuk as presented by Muhammad Taqi
Usmani.

According-to Muhammad Taqi Usmani, the general benefits of sukuk include:

 financing large enterprises that are beyond the ability of a single party to do so
 providing an ideal means for investors seeking to deploy streams of capital
and who require, at the same time, the ability to liquidate their positions with
ease whenever the need should arise
 representing an excellent way of managing liquidity for banks and Islamic
financial institutions (IFIs). When these need to dispose of excess liquidity
they may purchase sukuk; and when they are in need of liquidity, they may sell
their sukuk into the secondary market
 being a means for the equitable distribution of wealth as they allow all
investors to benefit from the true profits resulting from the enterprise in equal
shares.
Page Ref: 259 LO: 1
Question 2
What are the major differences between sukuk and bonds?

The major differences between sukuk and bonds are:

 while conventional bonds are contractual debt securities, sukuk represent the
undivided ownership of each of the sukuk holders in the underlying asset
 the return in conventional bonds is in the form of interest (coupon) and the
principal amount whereas in sukuk, the return is in the form of profits that are
paid out pro rata in accordance with the value of shares held by each sukuk
holder
 the contractual relationship between the issuer and the investors in sukuk is
simply a partnership and not a debtor and credit relationship, as in the case of
conventional bonds
 sukuk holders have ownership rights in the underlying asset, while
conventional bonds do not usually carry ownership rights in the asset
 sukuk must be asset-backed, while bonds may not necessarily be asset-backed.
Page Ref: 261-262 LO: 1

Question 3
Describe the most common classifications of the types of sukuk structures.

The most common classifications of the types of sukuk structures are:

1) Tradable and non-tradable sukuk
 tradable sukuk: Islamic investment certificates that represent tangible assets
or proportionate ownership of a business or investment portfolio. Examples of
these include sukuk al-ijarah, sukuk al-musharakah and sukuk al-mudarabah
 non-tradable sukuk: Investment certificates that represent receivables of cash
or goods. Examples of these include sukuk al-murabahah and sukuk al-salam

2) Equity-based and debt-based sukuk

 equity-based sukuk: Partnership-based Islamic investment certificates of
partnership contracts where the parties share the profits as well as any risk
arising from the investment activity
 debt-based sukuk: Investment certificates that are based on receivables such as
where the rights of the certificate holders are shares in the debt.
Page Ref: 264 LO: 2

Question 4
Describe how profits and losses are treated under mudarabah and musharakah
sukuk.

Any profits generated under mudarabah sukuk are distributed periodically according
to the predetermined ratio as contained in the underlying contract. The issuer pays the
sukuk holders in proportion to their individual shareholding in the capital invested. In
the case of any losses, the investors are solely responsible, unless it can be proved that
the loss was caused by negligence, mismanagement, or fraud on the part of the
entrepreneur.

On the other hand, under musharakah sukuk profits are distributed periodically
according to the predetermined ratio as contained in the underlying contract between
the issuer and the certificate holders. The issuer pays the investors/sukuk holders in
proportion to their individual shareholding in the business. In the event of any losses,
the parties share the risk burden in proportion to their respective capital contributions.
Page Ref: 268-270 LO: 2

Question 5
Describe the different variations of ijarah sukuk.

The different variations of ijarah sukuk are:

 sukuk of ownership in leased assets. This kind of ijarah sukuk is issued with
the sole aim of selling the asset to the sukuk holders through the transfer of
title. This form of ijarah sukuk can be used for the purchase of a new asset
 sukuk of ownership of usufructs of assets. In this case, the sukuk holders only
become the owners of the usufruct (manfaa) of the assets. The sukuk are
issued with the aim of conferring the right of usufruct to the sukuk holders
where they become joint owners
 sukuk of ownership of service. This form of ijarah sukuk is issued to
subscribers for the purpose of conferring ownership of services to the sukuk
holders. Such services are provided through a specified provider and the
ownership transferred to the sukuk holders, who may also sublease the services
to a third party.
Page Ref: 272 LO: 2

Question 6
Identify the AAOIFI’s five main characteristics of investment sukuk.

The main characteristics of investment sukuk are:

1. certificates represent the rights and the obligation of the owners
2. common share in the ownership of the underlying assets
3. share compliance
4. trading investment of investment sukuk and the rights they represent
5. returns and losses are commonly shared by certificate holders
Page Ref: 274 - 275 LO: 3

Question 7
What are the Sharī‘ah requirements for the issuance of investment sukuk?

The following Sharī‘ah requirements must be observed in the process of issuance of

investment sukuk.
  any of the major Islamic modes of finance can be used to structure investment
sukuk
 subscriptions can be made on the basis of any of the (14 types) of sukuk
 the certificates must be issued to securitize tangible assets, usufructs, or
services. Debts owed or other receivables as a liability do not fall in the list of
permissible assets
 there must be an underlying asset for the issuance of sukuk. The value of the
assets, usufructs, or services is divided into equal shares for the purpose of
issuing certificates to sukuk holders. The subscription funds must be used for a
Shari‘ah-compliant contract.

The contract of sukuk issuance between the issuer (SPV) and the subscribers
(sukuk holders), who are the main parties of the contract, is governed by all the rules
applicable to the contract type upon which the contract of issuance is based.
Page Ref: 275 LO: 3

Question 8
Describe the AAOIFI 2008 ruling on the sukuk tradability.

Sukuk, in order for them to be tradable, must be owned by the sukuk holders, together
with all of the rights and obligations that accompany such ownership. The manager of
a sukuk issuance must establish the transfer of ownership of such assets in its books
and must not retain them as its own assets.
Page Ref: 278 LO: 3

Question 9
What are the six basic categories used by IIRA to analyze sovereign sukuk and
the likelihood of any default on debt obligations at maturity?

The six basic categories used by IIRA to analyze sovereign sukuk and the likelihood
of any default on debt obligations at maturity are:
• politics and policy continuity
• the economy—structure and growth prospects
• budgetary and fiscal policy
• monetary policy and flexibility
• the external accounts
• internal and external debt
Page Ref: 281 LO: 4

Question 10
List the eight major rating products identified by the IIRA.

The IIRA identified the following eight major rating products:

• sovereign rating
• issuer rating
• bond/sukuk rating
• insurer financial strength rating
• bank financial strength rating
• Sharī‘ah quality rating
• corporate governance rating
• real estate rating
Page Ref: 283 LO: 4

Question 11
Explain the methodology employed in rating the issuer of sukuk.

In rating the sukuk issuer, the entity is rated with particular regards to its
creditworthiness and its continued ability to fulfill its debt obligations to stakeholders,
particularly investors. The overall financial and institutional creditworthiness of an
issuer will determine the level of confidence potential investors will have in it. Issuer
rating enhances the credibility of the corporate entity.
Page Ref: 284 LO: 4

Question 12
Identify the key elements considered by IIRA when assessing the level of
compliance of a financial institution or corporate entity with the requirements of
the Shari‘ah.

IIRA considers the following major elements in the assessment process : procedure of
authentication of products and services, safeguards against comingling of funds in the
case of an Islamic window or branch of a conventional financial institution, code of
ethics adopted by the institution, policy on the calculation of profit or loss and the
consequent sharing of same, whether the types of business undertaken are Sharī‘ah
-compliant or not, the Sharī‘ah compliance of both assets and liabilities, etc.
Page Ref: 285 LO: 5