IBFM M5 ONLINE

CONFIDENTIAL

PROGRAMME : ISLAMIC PROFESSIONAL CREDIT CERTIFICATION (iPCC)
MODULE : ISLAMIC BUSINESS FINANCING PRODUCTS (IBFP)
TIME : 3.5 HOURS

INSTRUCTIONS TO CANDIDATES:

1. This question paper consists of TWO (2) sections:

i. Section 1 60 Multiple Choice Questions (MCQs)
ii. Section 2 Two (2) Case studies

2. Answer ALL sections in this question paper and you are advised to allocate your time as
for each section as follows: 1 hour on Section 1 and 2.5 hours on Section 2.

3. Candidates are required to answer in the Answer Template provided.

EXAMINATION REQUIREMENTS:
Answer Template
Glossary
Non-programmable calculator

* DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO
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This question paper consists of 17 pages

CONFIDENTIAL

Section 1

Answer ALL questions.

1. Describe the characteristic of the commercial business financing.

A. Package product offering.
B. Approval at branch level.
C. Substantial financing facility.
D. Standard terms and conditions.

2. A man was attracted to a limited-edition watch advertised online. The advertisement stated the price
and its specification. Upon checking, the reliable seller told the man that the watch was already sold
out. However, the man agreed to pay a non-refundable deposit upfront with extra charges and to be
delivered to him once the seller has the stock available for sale.

Identify the issue of this transaction.

A. Unknown seller.
B. Extra price charged.
C. Uncertainty of the delivery.
D. Uncertainty of the product specification.

3. A subsidiary company borrowed money from a Holding company under the shareholders' advances
and agreed to pay extra without specifying the amount and timeline.

Determine the prohibited element from the perspective of Islamic transaction.

A. Riba arising from extra amount promised.
B. Gharar arising from uncertainty of the timeline.
C. Gharar arising from uncertainty of the extra amount.
D. Gambling arising from uncertainty about the intention of borrowing.

4. Which of the following is the selling price for the Commodity Murabahah (Tawarruq) financing?

A. Financing amount plus legal fees.
B. Financing amount plus Bank's profit.
C. Purchase price plus Bank's profit.
D. Financing amount plus Ujrah.

5. A durian buyer has paid a non-refundable upfront amount to a durian seller to purchase the durian
fruits from the seller's orchard for next year's season.

Interpret the reason for the invalidity of the contract.

A. No offer and acceptance.
B. No underlying assets.
C. No contracting parties.
D. No refund clause.

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6. A company needs a production machine but does not want to own it as the company plans to change
the machine after 5 years.

Choose the MOST appropriate Shariah contract for this type of financing.

A. Ijarah.
B. Al Ijarah thumma al bay.
C. Ijarah muntahiah bi tamlik.
D. Musharakah Mutanaqisah.

7. Which of the following is NOT appropriate for fixed asset financing?

A. Term Financing.
B. Leasing.
C. Hire Purchase.
D. Invoice discounting.

8. Based on operating cycle, the customer needs RM100,000 working capital. However, the customer
is currently enjoying Letter of Credit facility limit of RM50,000.

Calculate the appropriate amount of financing that should be offered to the customer.

A. RM50,000.
B. RM85,000.
C. RM100,000.
D. RM150,000.

9. A sole proprietor in trading business with large amount of bank balance has requested a substantial
amount of financing to purchase rubber plantation.

Determine the MOST possible reason to reject the application.

A. Unstable rubber price.
B. Riba on the bank balance.
C. Inappropriate nature of business.
D. Substantial financing amount.

10. The following are the possible implication in the event the Bank has made poor credit decision in
extending the financing, EXCEPT:

A. The financing may not be sufficient.
B. The financing may not be settled on time.
C. The financing may not be utilised.
D. The financing may not be impacted.

11. Determine the MOST relevant method to mitigate the credit risks in financing.

A. Reject the financing to eliminate the risks.
B. Provide more information about the business in the credit memo.
C. Impose specific condition on the utilisation of financing facility.
D. Always ensure the financing is fully secured.

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12. Choose a CORRECT Shariah ruling concerning rescheduling and restructuring.

A. No late payment after expiry of the financing tenor.
B. Only penalty charges can be compounded.
C. Late charges can be accumulated without exceeding bank selling price.
D. No extra charges for extending the tenor.

13. The customer has changed its business model of which it extends longer credit period to its
customers. The existing working capital facilities are not feasible for its new business operations.

Based on the scenario, choose the BEST option for the customer without having to bear additional
cost on stamp duty.

A. Reschedule the current working capital facilities.
B. Restructure the current working capital facilities.
C. Maintain the current facilities.
D. Extend new facilities with additional limits.

14. How does a bank mitigate credit risk to reduce exposure to applicant other than requesting adequate
security and also directors' guarantee?

A. Review the exposure periodically.
B. Lower the exposure limit.
C. Impose covenant for company to provide financial statement periodically.
D. Increase the profit rate.

15. Explain the purpose of analysing the character of the management and shareholders.

A. To evaluate their willingness to pay.
B. To evaluate their commitment in the business.
C. To evaluate their competency in handling business operations.
D. To evaluate business sustainability.

16. Select one of the MAIN elements required in a manufacturing company before making sales forecast.

A. Number of competitor.
B. Inflation rate.
C. Unemployment rate.
D. Material cost.

17. Choose the area to be analysed in order to know the company's liquidity.

A. Cash flow position.
B. Earning capacity.
C. Tangible Net Worth.
D. Gearing position.

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18. The company's profit is not promising. However, it is just sufficient to cover the financing obligation.
Determine the expected Debt Service Ratio (DSR) based on the above scenario.
A. DSR < 1.0 time.
B. DSR = 1.0 time.
C. DSR > 1.0 time.
D. DSR > 1.5 times.

19. The company profit margin is reducing due to price war in the market. Simultaneously, the suppliers
will also be affected and no new company will be interested to join the market.
Determine the MOST relevant Micheal Porter's 5 Forces to address the above situation.
A. Competitive rivalry.
B. Bargaining power of supplier.
C. Threat of new entrants.
D. Threat of substitute.

20. Identify the type of risk if there is an error in calculation of profits in Islamic banking.
A. Market risk.
B. Credit risk.
C. Operational risk.
D. Shariah risk.

21. Based on Maqasid Shariah which is in line with ethical or sustainable banking, select the MOST
appropriate financing activity to achieve the ‘maslahah’ ie. public and social benefit.
A. Established business supported by politician.
B. Stable business with banking facilities offered by other banks.
C. Growing small businesses owned by an individual.
D. Unstable business owned by a religious man.

22. Identify a tolerable Shariah non-compliance risk.
A. Aqad that is not performed correctly.
B. Financing non halal activities.
C. Misuse of conventional terminology in advertisement.
D. Wrong sequence of contract.

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23. A growing small and medium-sized enterprise (SME) has requested RM1 million but the Debt Service
Ratio (DSR) calculated is less than 1.5 times.
As the bank is not comfortable with the ratio, what is the BEST option that Bank can adopt in risk
management approach?
A. Transfer the risk.
B. Share the risk.
C. Mitigate the risk.
D. Ignore the risk.

24. There are frequent cases of Shariah non-compliance events occurring at different branches but duly
rectified.
Determine the Shariah Management Process that needs to be enhanced to prevent such recurrences
of Shariah non-compliance events at branches.
A. Risk Awareness and Avoidance.
B. Risk Identification and Reporting
C. Risk Mitigation and Measurement.
D. Risk Monitoring and Control.

25. Country risk can be caused by political or economic landscape of the country.
Which of the following refers to economic risk?
A. Changes in the ruling government.
B. Country involved in financial crisis.
C. Country involved in war.
D. Changes in immigration policy.

26. Top Glove Berhad plans to raise fund from local investors to finance their new overseas project via
Sukuk issuance.
Determine the MOST appropriate facility to facilitate the funding.
A. Bank Guarantee-i.
B. Standby Letter of Credit.
C. Letter of Credit.
D. Supply Guarantee-i.

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27. LMN Trading is a middleman broker who supplies various medical products. They would like to
purchase the required goods from their supplier against the master letter of credit received from their
ultimate buyer.

Based on the above scenario, choose the MOST suitable type of trade finance product for LMN
Trading.

A. Transferable Letter of Credit.
B. Back to Back Letter of Credit.
C. Irrevocable Letter of Credit.
D. Standby Letter of Credit.

28. Based on the cashflow in the financial statement of a trading company, there is a shortage of cash.

Choose the BEST option to cover the shortage.

A. Sell off the fixed assets.
B. Increase the credit term to customer.
C. Improve collection from customer.
D. Reduce the bank's financing outstanding balance.

29. How can the property owned by a director of a company help to strengthen the company’s credit
application?

A. The company acquires the property from the director and then charges to the Bank.
B. The director charges his own property under a 3rd party charge.
C. The director disposes his property and uses the proceeds for his business.
D. The director temporarily hypothecated the land to the Bank.

30. An SME company registered high sales and manages its selling, general and administrative
expenses effectively. However, the company still registered a Net Loss.

What could be the MOST possible reason for the Net Loss?

A. High financial charges.
B. High cost of goods sold.
C. Low financial charges.
D. Low cost of goods sold.

31. Islamic bank is required to maintain at least two capital reserve mechanisms known as Tier1 and
Tier 2.

Which of the following is categorised under Tier 1?

A. Retained Earnings.
B. Sukuk.
C. Investment in stock.
D. Bank balance.

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32. Determine the type of financial statement analysis for solvency ratio to determine the financial health
and position of the company.

A. Common Size Analysis.
B. Cross Sectional Analysis.
C. Trend Analysis.
D. Horizontal Analysis.

33. Average Account Payable X 365 days
Cost of Purchase

The above calculation is used to measure the efficiency of the company to manage its liabilities to
which of the following business partner?

A. Supplier.
B. Buyer.
C. Financier.
D. Shareholder

34. Based on the last 3 years’ financial statements, the company's average debtor turnover has increased
from 90 days (Year 1) to 120 days (Year 2) and 150 days (Year 3).

Determine the MOST relevant reason for the above scenario.

A. The company's sales is growing.
B. The company has bargaining power over its buyers.
C. The company's profit margin is reducing.
D. The company's buyers are delaying the payment.

35. The company's leverage position is at 5 times. They asked from a bank for additional financing
supported by 100% collateral but no additional paid-up capital.

Choose the BEST answer to address the company's leverage position after the additional financial
support from the bank.

A. Remain at 5 times.
B. Equal to 1 time.
C. More than 5 times.
D. Less than 5 times but higher than 1.

36. Which of the following types of land is LEAST preferable by the bank to take as collateral?

A. Freehold land.
B. Leasehold land.
C. Malay reserve land.
D. Leased and tenancies land.

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37. A company has been awarded a contract and agreed to assign the contract proceeds to the bank
for financing.

Based on the above situation, identify the MOST suitable security instrument used for this
arrangement.

A. Charge.
B. Debenture.
C. Deed of Assignment of contract proceeds.
D. Memorandum of Deposit.

38. Which of the following factors that differentiates between principal charge and subsidiary charge?

A. Date of the charges.
B. Stamping duty payable.
C. Types of document.
D. Registration of the charges.

39. All three (3) directors of Maju Sdn Bhd have agreed to sign a Joint and Several Guarantee for a
financing of RM900,000.

Based on the above, determine the liability of each director.

A. Each director is responsible for RM300,000 respectively.
B. Each director is responsible for the whole amount of RM900,000.
C. The directors must decide among themselves the fair proportionate responsibility in the

guarantee sum.
D. Each of them will be responsible based on the proportionate shareholding in the company.

40. When the value of the existing land charged to another bank is not sufficient, the director is willing to
offer his own land to the bank for additional facility.

Determine the MOST accurate type of security involved.

A. First party first charge and guarantee.
B. First charge on third party property.
C. First party second charge and guarantee.
D. First party second charge and third party charge.

41. Which of the following is NOT the accountability of executive credit administration?

A. To ensure title, ownership and possession of securities are intact.
B. To ensure all conditions precedent are complied with by customer.
C. To ensure conformity with Shariah requirements.
D. To prudently safe keep such securities documentation.

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42. Determine when the charge of land is considered to have been perfected.
A. Upon execution of charge document.
B. Upon stamping of charge document.
C. Upon presentation of charge document.
D. Upon disbursement of facility.

43. Determine the documents required for the disbursement of the facility secured by Fixed Deposit.
A. Memorandum of Deposit and Letter of Set-off.
B. Notice to Customer and Fixed Deposit on lien.
C. Letter of Set-off and Notice to Customer.
D. Fixed Deposit Receipt and Memorandum of Deposit.

44. An established customer needed to provide its business license as one of the conditions precedent.
However, the customer did not comply with the terms and the customer's lawyer demanded that the
disbursement be effected urgently.
Considering the above scenario, determine the BEST action to be taken by the disbursement officer.
A. Change the condition precedent and proceed with the disbursement.
B. Maintain the condition precedent and proceed with the disbursement.
C. Hold the disbursement until the condition precedent is fully complied.
D. Cancel the financing.

45. A customer refuses to comply with the condition precedent, as stated in the Facility Agreement
because the customer argues that the terms are different from the Letter of Offer.
Considering the above scenario, what is your BEST suggestion to the customer?
A. To cancel the facility due to inconsistencies of the terms and conditions.
B. To sue the bank due to non-committal to the Letter of Offer.
C. To sign a Supplemental Letter of Offer incorporating the new amendment.
D. To adhere to the terms of the Facility Agreement.

46. A manager commented that the financial statement is not a good justification to make decision. He
insisted that the decision that should be based on the cashflow and financial projection. What
constraint does the financial statement have?
A. Materiality.
B. Timeliness.
C. Conservatism.
D. Consistency.

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47. The value of the assets cannot be ascertained. Based on audit, the value of the assets could range
from RM100,000 to RM120,000.
Using Conservatism concept, which amount is to be reported?
A. RM100,000.
B. RM10,000.
C. RM120,000.
D. RM99,000.

48. Identify the following component that would reflect an increase of the same amount in the balance
sheet if a company withdraws cash from financing account for the purchase of inventories.
A. Bank borrowing.
B. Creditor.
C. Cash and Bank balances.
D. Paid-up capital.

49. The company's request for financing was declined due to high leverage position.
Determine the company's action to improve its leverage position.
A. Collect from debtors.
B. Shareholders to provide cash injection.
C. Declare dividend.
D. Support from creditors to delay the payment.

50. A director advanced RM1.0 million of his own money to the company. 70% of the money was used
on office renovation, while the balance 30% was utilised for working capital.
Determine the amount in current assets that reflects the above transaction?
A. RM1.0 Million.
B. RM0.7 Million.
C. RM0.3 Million.
D. RM2.0 Million.

51. Which of the following is NOT a significant ratio for credit analysis?
A. Earning Per Share.
B. Debt-Equity Ratio.
C. Inventory Turnover Ratio.
D. Gross Profit Margin.

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52. A high-end condominium with market price at RM8.5 million located near KLCC was offered to the
bank by the company's director as a 3rd party security. The credit committee, however, rejected it.

Which of the following is the MOST possible reason for the rejection?

A. Disposability of the condominium.
B. Unstable market price of the condominium.
C. Transferability of the condominium.
D. Location of the condominium.

53. "All credit factors have met the requirements of the bank except the Debt Service Ratio (DSR)"
commented the chairman of the credit committee".

Which of the following is the related factor that concerns the chairman?

A. Character.
B. Capacity.
C. Capital.
D. Condition.

54. A company requested a financing to build the most sophisticated plant that can process 3 times faster
than the competitor in the market. However, the credit committee is concerned about insufficient
supplies of raw materials.

Which of the following mitigating factor is the MOST crucial to address the committee's concern?

A. List of existing suppliers with the company.
B. Suppliers' strong financial position.
C. Long term contract with the suppliers.
D. Availability of new potential suppliers in the market.

55. "As the unemployment rate is increasing, we need to be very cautious in approving the financing
application from a certain sector", said one of the credit approval committee members.

Which of the following credit factors would be his primary concern?

A. Character.
B. Condition.
C. Collateral.
D. Capital.

56. Identify a circumstance that the customer will be charged with compensation charges (Ta'widh).

A. When there is late payment of the instalment.
B. When the bank has to dispose the collateral.
C. When the bank is appointed as an agent in Wakalah transaction.
D. When the customer withdraw the money more than the financing limit.

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57. Based on Bank Negara Malaysia (BNM) ‘Fair Debt Collection Practices', how many times a week can
the Debt Collection Agency (DCA) communicate with the customer?

A. Not more than 2 times.
B. Not more than 3 times.
C. Not more than 4 times.
D. Not more than 5 times.
58. Choose the impacted financing account due to a business failure.
A. Mismatch of funding.
B. Excessive borrowing.
C. Abnormal growth of financing portfolio.
D. Inadequate internal monitoring system.

59. A company has missed two consecutive instalments for the first time in three years. When contacted,
the managing director informed that he wanted to pay but the company is currently facing tight
liquidity cash flow.
Based on the above situation, justify the MOST possible reason for the company's tight cash flow.
A. Production incapacity.
B. Extended credit term from suppliers.
C. Business wound-up.
D. Higher overhead expenses.

60. The bank has decided to foreclose a land with title HS(D) at a market value of RM200,000.
Which of the following jurisdiction is for the Bank to file the foreclosure proceeding?
A. Auctioneer’s office.
B. Land office.
C. High court.
D. Session court.

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Section 2

Answer ALL Questions

Case Study 1

A&A Trading Sdn Bhd was established 10 years ago. The company is owned by two individuals
i.e. Mr Alim and Mr Ah Seng who have been company’s directors for the last 20 years. The company
operates in a rented warehouse in Rawang, Selangor to keep their stocks. The average stocks turnover is
45 days.

They are involved in trading of consumer goods including a very small portion of liquor products
(less than 5% of sales). Their customers are widely spread throughout Peninsular Malaysia totaling 142
accounts consisting of retailers, supermarket operators and also restauranteurs.

About 80% of the customers are on credit term of 30-60 days whilst 20% is on cash sales. 20% of
the debtors are with receivables ageing of up to 120 days.

The company’s financial performance for the last 3 years is summarised below:-

Item Last 3 years Last 2 years Last year
Sales (RM’ Million) 5.5 6.0 6.3
7.4
Gross Profit Margin (%) 8 7.9 4.7
6
Net Profit Margin (%) 4.8 4.7 1.3

Gearing (times) 56

DSR (times) 1.5 1.4

Based on the previous year’s economic condition and its spill-over effect in the coming year, sales
are expected to increase next year and there is a need for additional financing for the purchase of stock
locally and also from overseas mainly from Thailand. Most of the suppliers are on 30-day credit term except
for liquor products from Thailand of which it is on cash basis.

Currently, the company is enjoying bank financing from two conventional banks as follows:-

Bank Facility Limit (RM) Purpose Security

First Bank Hire purchase 300,000 Purchase of Lorries Lorries

Second Bank Overdraft 200,000 Working Capital 30% against Fixed

Deposit

All the above facilities have been well conducted with prompt payment. However, the existing
banks hesitate to provide additional financing due to the company’s highly leveraged position. For this

reason the company is now approaching Bank A, an Islamic bank, for its financing proposal.

In terms of competition, they admitted that the competition is very stiff as the industry is saturated.
The competitive advantage of the company is its long-established relationship with its customers and
suppliers as well as its ability to control the operating cost including overheads.

When Bank A raised concern on the small contribution of non-halal income on liquor products for
Islamic financing, the directors acknowledged and willing to reduce it as the contribution is insignificant to
the company.

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Answer the following questions based on the case.

1. If two individuals would like to replicate the business structure of Mr Alim and Mr Ah Sheng from
Islamic perspective, what would be the MOST appropriate Shariah-compliant contract between the
two individuals and list down the key elements of the contract?
(2 marks)

2. Based on the above case study, should Bank A agree to finance the request, recommend and
justify the appropriate facility to be offered to A & A Trading Sdn Bhd for its working capital
requirement.
(2 marks)

3. Based on the case above, identify the THREE (3) primary risks to Bank A in extending financing to
A & A trading and ways to mitigate it.

(9 marks)

4. Identify TWO (2) external factors that you opine which may have negative impact on the company’s
performance in subsequent year.

(4 marks)

5. Identify THREE (3) criteria of 5C principle in credit to decide on the application.

(3 marks)

(TOTAL: 20 Marks)

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Case Study 2

Mr Halim, a Finance Manager of Plastic Manufacturing Sdn Bhd (PMSB) has met his old friend, Mr
Yusri a Credit Manager of Islamic Bank. During the meeting Mr Yusri shared a lot about Islamic banking.
The progression of Islamic Banking in Malaysia has been a tremendous development. The financial
alternative is not only viable and Shariah compliant but also competitive compared to its conventional
counterpart. The sharing has created Mr Halim’s interest in getting Islamic financing for PMSB’s expansion
plan. The next day he shared through email the following information on PMSB with Mr Yusri.

Plastic Manufacturing Sdn Bhd (PMSB) was established 8 years ago. It started in a shop lot in
Puchong as an injection moulding contract manufacturer with 2 injection machines. PMSB has grown in
this high-risk sector with the competitive edge by providing design, manufacturing and supply chain to
customers comprising mainly local companies focusing on central of peninsular Malaysia.

The key success factor of the company is the chairman itself, Mr Shan Fook Yong (Mr Shan). He
is dominant in decision-making but has good knowledge in the operation, sources of raw material as well
as distribution channel.

Mr Shan aged 50 years old has more than 20 years of experience in this industry. He worked as a
manager in May Plastic Berhad, a listed company for more than 10 years before initiating the PMSB. The
industry is not regulated and it is really based on open market. It was easy for him to start a business like
his employer.

Below is the financial performance of the last 3 years.

Item Last 3 years Last 2 years Last year
Sales (RM’ Million) 7.7 7.8 7.7
24 25
Gross profit Margin (%) 25 14 13
45 44
Net Profit Margin (%) 15
1.9 1.8
Average Operating Cycle (days) 44 1.6 1.7

Gearing (times) 2

DSR (times) 1.5

Currently, PMSB is only enjoying an Overdraft facility limit of RM500k from OKB Bank which has
been actively and satisfactorily conducted. PMSB plans to expand the business as the existing capacity
has reached its maximum. The company plans to set up another production line at its own shop lot in Teluk
Intan, Perak which was acquired some time ago. However, the company has yet to receive the necessary
approvals from the local authority which is pending finalisation.

Hence, additional financing is required for its capital expenditure for the purchase of machinery.
The machine has the most advanced technology in which it could be the first company to use this
technology in Malaysia. It will be imported from Taiwan at a cost of RM1.2 million and will have an estimated
useful life of 15 years. PMSB has paid 20% of the cost as a deposit.

The company also requires working capital financing for its raw material for the new production
line. He assumes that for the first two years, production will reach 50% of the capacity, even though there
is a slow GDP growth projection and uncertainties in the plastic industry in the coming year as recently
reported.

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Based on the feasibility study report, the breakeven will only take effect on the third year when the
company reaches its maximum capacity. The DSR is projected to be 0.5x in year 1, 1.3x in year 2 and 1.7
in year 3.

Answer the following questions based on the case.
1. Mr Shan is not familiar with Islamic Banking which he claims has a lot of restrictions and ambiguity.

How can you apply any TWO (2) of the prohibited elements that are relevant to convince Mr Shan’s
negative perception towards Islamic Banking?

(4 marks)
2. If you were Mr Yusri, propose suitable Islamic Banking facilities for Mr Shan to meet PMSB’s

capital expenditure and working capital requirement and state the purpose of each facility.
(6 marks)

3. Identify TWO (2) possible risks of PMSB’s business that can trigger credit risk to the bank and
describe how the bank mitigates its credit risks.
(6 marks)

4. Identify ONE (1) strength and ONE (1) opportunity factor that you opine which may have positive
impact on the company’s performance.
(4 marks)
(TOTAL: 20 Marks)

END OF QUESTION PAPER

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