CQIF-BANKING-26.3.2021-QUESTIONS-AND-CASE-STUDY

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CQIF BANKING

INSTRUCTIONS
▪ This question paper consists of 7 short essay questions in Part A and 1 case study
in Part B.
▪ Answer 4 questions from Part A and ALL questions from Part B.

PART A (20 MARKS)

Choose and answer four (4) out of the seven (7) following questions:

1. Shariah is a term used to describe the rules of the lifestyle (Deen) ordained by
Allah SWT. It is characterised as a “complete way of life”. Discuss briefly the five
(5) sources of Shariah.

2. The understanding of Maqasid Al Shariah is an essential need for every Muslim all
over the world. According to Muslim scholars, the masalih (benefits) are deemed
necessary to protect and preserve the five darurah (essentials). Discuss briefly the
five (5) darurah.

3. Code of ethics is a guideline that sets acceptable behaviours for a given group of
people or profession. According to FPAM’s Code of Ethics, a practitioner agrees to
act fairly and diligently when providing the clients with financial planning advises
and services. Discuss briefly the general Code of Ethics of an Islamic Financial
Planner from an Islamic perspective.

4. Financial planning is basically a discipline of wealth management applied to the
unique needs and concerns of each individual. Explain the three (3) main
differences between conventional and Islamic financial planning.

5. Qawaid Fiqhiyyah, or Islamic legal maxims, is concise statements regarding legal
principles formulated by Islamic scholars based on Shariah sources. What are the
five (5) major legal maxims that provide useful insights into the objectives of
Shariah?

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6. Zakat is an obligatory payment with an intention to purify one's wealth to gain

Allah's blessing. However, there are certain conditions to be met that make zakat
compulsory. Explain the five (5) conditions.
7. Estate planning is defined as a process of making appropriate arrangements for the
protection, preservation and provision of a person’s assets for the benefit of
dependents and other beneficiaries. Discuss briefly three (3) important
instruments to be used if one wants to successfully plan one’s estate.

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PART B (80 MARKS)

The following instruction is based on the case of Grey Adham and Hanan Kayra.

Task
1. List out the issues of the case and your tasks in evaluating these issues, according

to the following financial planning components:

a) Cashflow and Net Worth;
b) Islamic Risk Management and Takaful;
c) Individual Zakat and Taxation;
d) Islamic Investment Planning;
e) Islamic Retirement Planning;
f) Islamic Legacy Planning.

(10 marks)

2. Analyze the information provided and evaluate to what extent their goals, needs
and priorities can be met.

a) Cashflow and Net worth;
b) Islamic Risk Management and Takaful (focusing on the husband). Use the

capital intact method.
c) Individual Zakat and Taxation;
d) Islamic Investment Planning;
e) Islamic Retirement Planning (focusing on the husband). Use the capital

liquidation method.
f) Islamic Legacy Planning.

(55 marks)

3. Based on the plans developed in No. 2 above, evaluate to what extent the goals,
needs and priorities of the client can be met. Present your recommendations for
each component. The client should be informed of the rationale behind each
recommendation.

a) Cashflow and Net worth;
b) Islamic Risk Management and Takaful.
c) Individual Zakat and Taxation;
d) Islamic Investment Planning;
e) Islamic Retirement Planning;
f) Islamic Legacy Planning.

(15 marks)

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CASE OF GREY ADHAM AND HANAN KAYRA

Introduction
Grey Adham or famously known as Mr. Grey and his wife; Hanan Kayra have read an
article on Islamic financial planning in 4E Journal magazine. The article mentioned that;

“The Qur’an being the ultimate guidance provides a model on how wealth should be used
in fulfilling his roles as a vicegerent from a personal point of view. The conventional
approach to financial planning is not enough to provide guidance on the personal goals
beyond this world, which is a component of the obligations of a Muslim’s life. The
intention to conduct Islamic financial planning must align with the application of Maqasid
Shariah, which emphasises on the protection of essential needs of Muslims that include
preservation of wealth.”

Since then, they have been doing a lot of reading and researching about Islamic financial
planning to enhance their knowledge in this area. Hence, they feel the need to
immediately seek advice from a Financial Planner to assist them in managing their
wealth.

They met you on 1st January 2018 and were impressed by your detailed explanation of
the concepts of Islamic financial planning. You have been asked to prepare a
comprehensive plan for realising their financial goals. You have gathered the following
information from the meeting.

Personal Information
Mr. Grey (40 years old) and Hanan Kayra (30 years old) have been married for five
years. Mr. Grey has a son from his previous marriage with Rosnaida; Adam (10 years
old).

Mr. Grey is the only son in the family and his mother passed away 2 years ago. He
inherits a house in Bangi with a current market value of RM500,000 from his late
mother’s estate and he is renting out this house at RM1,000 per month. He contributes
RM1,000 per month for alimony as part of the separation agreement with Rosnaida since
the last seven years. His father is currently staying with him.

Hanan Kayra is currently a teacher. She contributes RM500 monthly to her mother who
lives with her sister after her father died in an accident. She wanted to show that
although she is the wife to Mr. Grey, her responsibility towards her mother remains. Her
mother lives in Kampung Baru and she always makes an effort to visit her every month.
Her sister is the only sibling that she has.

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Due to the increasing cost of tertiary education, Mr. Grey wishes to set up an education
fund for Adam, and he prefers not to take any education financing for him. He wants to
estimate how much money should be invested to prepare for Adam’s education cost and
seeks your advice on ways to set up the education plans. He anticipates that Adam will
begin attending university at the age of 18 years old. He plans to enrol Adam in local
universities. The average current cost of study for a 4-year social sciences degree
programme, including living expenses is RM20,000 per year, and this cost is expected to
rise at 5% per annum.

Financial Information
As a Chief Financial Officer (CFO) of Reefa Global Berhad (RGB), Mr. Grey is currently
enjoying a lucrative remuneration package for his position; a salary of RM20,000 per
month and the salary is expected to grow at 4% per year. For retirement purpose, he
currently contributes 11% of his salary to Employee Provident Fund (EPF) while the
company contributes 12%. His current EPF balance is RM300,000.

Meanwhile, Hanan Kayra earns a monthly salary of RM4,000. Her salary is expected to
increase 4% per year. She has chosen the pension scheme as her retirement option;
therefore, she does not contribute to EPF. As a government servant, she receives yearly
bonus amounting to half of her monthly salary.

Mr. Grey contributes RM1,000 while Hanan contributes RM200 per month for their
Takaful protection plans and they are entitled to a total coverage of RM500,000 and
RM100,000 respectively. The current cash value for both Takaful plans is RM100,000 for
Mr Grey and RM20,000 for Hanan Kayra.

They are also covered by their organisation’s coverage, where the death benefit is at ten
times of their basic monthly salary. For health coverage, Mr. Grey participated in a
medical Takaful plan which provides cover for all of his family members since the last
four years, with an annual contribution of RM5,000.

Mr. Grey and Hanan Kayra submit separate tax assessment to Inland Revenue Board of
Malaysia (IRBM), and both have been paying taxes of RM1,000 and RM200 every month
respectively. They also pay zakat; RM3,000 from Mr. Grey and RM500 from Hanan Kayra
annually. They have asked you on the current status of these tax and zakat payments,
including zakat on wealth.

Presently, they are residing in a double storey bungalow in Sungai Long which was
purchased by Mr. Grey 4 years ago. He bought this house using an RM1,000,000 Islamic
home financing attached with Mortgage Reducing Term Takaful (MRTT) for 20 years at
8% profit rate per annum. The current value of similar houses in this area is at
RM2,000,000.

Hanan Kayra also bought a single terrace house in Kajang 2 years ago using Islamic
home financing (with MRTT) worth RM250,000 for 25 years at the profit rate of 9% per
annum. The current value of the house is RM300,000 and has been rented out at RM500
per month.

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Mr. Grey drives an Audi A7 that cost him RM350,000 when he bought it three years ago.
He paid RM100,000 as the down payment, and secured a 9-year Islamic hire purchase
financing (with Hire Purchase Reducing Term Takaful) to finance its balance with 5%
profit rate. Hanan Kayra drives herself to school since her office schedule is different
than Mr Grey’s.

Mr. Grey bought Hanan Kayra a Mini Cooper 2 years ago at the price of RM250,000. He
took RM50,000 conventional hire purchase loan with 2.5% interest rate for seven years.
Other than that, both of them have conventional credit cards with an outstanding
balance of RM10,000 for Mr. Grey and RM4,000 for Hanan Kayra.

List of assets with their current values, owned by the couple, are as follows:

Assets Mr. Grey Hanan Kayra
Mudharabah Savings Account RM10,000 RM5,000
Tabung Haji RM4,000
ABC Unit Trust RM6,000
Reefa Global Shares RM20,000 RM10,000
Bank Kerjasama Rakyat Shares RM100,000 -
SMN Bhd Shares
Bitcoin - RM5,000
Gold bar RM120,000 -
RM 10,000
RM5,000

In January 2016, Mr. Grey invested 20,000 shares in SMN Bhd with a face value of RM5
per share. But based on your findings and also information received from Jabatan
Kemajuan Islam Malaysia (JAKIM), this company produces non-halal products and is
classified as Shariah Non-Compliant stock by Securities Commissions last November. You
have informed this to him, and Mr. Grey seeks your advice on the method of cleansing
for this investment.

In your first meeting, Mr. Grey provides the following information on his family expenses
for the year 2017. He plans to remove some of the current expenditure and asks your
opinion to have 30% reduction in his ongoing costs for the telephone bill, UNIFI internet
bill, dining and vacation expenses.

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Item Mr. Grey CONFIDENTIAL
Yearly (RM)
Groceries Hanan Kayra
Utilities 6,000 Yearly (RM)
Telephone 2,000
UNIFI (TV satellite) 5,000 -
Dining Out 2,400 -
Clothing 6,000 2,500
Books 5,000
Personal Expenses 1,000 5,000
Maid – Mak Senah 2,000 1,000
Vacation 3,000
Miscellaneous - 9,000
Car Takaful & Road Tax 20,000
Car Maintenance 4,000 -
Petrol 1,500 2,000
3,000
4,000 800
2,000
2,000

Mr. Grey and Hanan Kayra plan to perform hajj together five years from now. Due to the
limited national hajj quota, they opt to choose a private hajj package which will cost
them RM50,000 each and this rate is expected to rise at 4% per annum. They want you
to estimate the amount of fund needed for the hajj purpose.

They plan to continue working until they reach 50 years old. After Mr Grey’s retirement,
they plan to reside in Mr. Grey’s house in Bangi. They estimate that an allowance of
RM15,000 per month in its current value is sufficient for them to maintain their lifestyle
for the next 20 years. The bungalow in Sg Long will be rented out. At present, the rental
rate for similar house in the area is around RM2,000 and is estimated to increase at 3%
a year.

You have been asked to advise them on how to achieve this retirement target. At the
same time, they have also realised the importance of having a proper plan for estate
planning, and they seek your advice on faraid distributions. The couple also indicates
their willingness to share the matrimonial assets at a ratio of 50:50 on the assets when
one of them dies.

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Assumptions
1) Inflation rate is at 3% per annum.
2) Future EPF dividends are expected at 5% a year.
3) EPF withdrawal at the age of 50: one third of EPF balance or Account II.
4) The rate of return on equity investment is 8%, REIT at 6% and saving account at

3%.
5) While unit trust is 8% and Tabung Haji is 6%. For unspecified investments,

weighted returns will be used in the calculation. All return is reinvested.
6) Income tax as at 2017 rate.
7) No dividends are expected from stock investments held and the market value is not

expected to change substantially in the near term.
8) All cars depreciate in value at an annual rate of 15%.
9) Life expectancy for male and female: 80 years.
10) Tabung Haji account is dedicated for Hajj planning only.
11) Zakat calculation is based on Lembaga Zakat Selangor for the year 2017. Based on

LZS, for financial assets, nisab for 2017 is RM14,850
12) Post retirement return on investment is expected to be at 6%.
13) Investment in Bitcoin has been giving 20% average return annually, gold bar 5%

average return per annum.
14) Bank Kerjasama Rakyat Malaysia has been declaring an annual dividend of 15% in

average.

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REFERENCE MATERIAL

FORMULA SHEET

Inflation Adjusted Return

R adjusted = (1 + return) x 100
-1

(1 + inflation)

Determining Size of a Fund under Capital Intact Method

PV = PMT ÷ R adjusted

Where:

PV = Present Value of the Fund
PMT = Payment Required from the Fund
R adjusted = Inflation Adjusted Return

Calculating Future Value of Employee Provident Fund (EPF) Contribution

A ( (1 + r) ^ n – (1 + g) ^ n
FV =

(r – g)

Where: = Present Value of the Fund
FV = Annual Contribution
A = Rate of Return
r = Rate of Salary Growth
g = Number of Period
n

Rebate Calculation for Car Financing

[ ( n ( n + 1 ) ) ÷ ( N ( N + 1 ) ) ] x Total Interest

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