Islamic Finance

Solve the following practical questions:

Q$1$: If you have the following data from the financial statements of the Islamic bank $($Y$)$ for the year $2023($AED$000)$ Balance Sheet: Total assets $50,000$ including: cash and balances with central banks $4,300,$ balances and deposits with banks and other financial institutions $1,200,$ Murabahat $28,000,$ Mudarabaht & Musharakat $5,000.$ Total equity $3,000$ including $2,300$ share capital and the number of shares is $230$ thousand shares. The total liabilities are $50,000$ including $20,000$ current deposits and $30,000$ investment deposits. The market price of the share as of $31/12/2023$ is AED $4.$

Income Statement: Income from Islamic Financing and Investing Assets $2,150,$ Income from Islamic Sukuk and stocks $380,$ Share of profits of associates and subsidiaries $195,$ and Commissions, fees and other income $600.$Personnel expenses $880,$ General and administrative expenses $340,$ Depreciations $14,$ and Net Impairment loss and Provisions $318.$ Depositors$$ share of profit $60\%.$ Income taxes is zero, gain on transfer of interest in subsidiary zero and depositors$$ share of Gain on transfer of interest in subsidiary zero.

A$)$ Analyze the performance of the Islamic bank $($Y$)$ in $2023$ using the following $5$ ratios given that the industrial averages $($between parentheses$).$ Comments on your results with industry average.

$1-$ Return on Equity$=$ Net income$/$Total Equity $(20\%)$

$2-$ Price Earnings Ratio $=$ Price $/$EPS $(8$ times$)$

$3-$Asset Turnover $=$Total operating income$/$Total Assets $(6$ times$)$

$4-$ Investment risk $=$ Provision for bad investments $/$Total assets $(0\mathrm{.}40\%)$

$5-$ Liquidity ratio $=$ Cash$/$Total deposits $(18\%)$

B$)$ What are the main differences between Islamic banks and conventional banks as discussed in the class.

Q$2)$ The profit sharing ratio between Islamic bank and the investment account holders $($assume only one investment account$)$ is $75\%$ for investment account holder and $25\%$ of Islamic banks. Islamic banks act as a Mudarib for fund management. Unrestricted Investment Accounts $($UIA$)$ is $70\%$ of total investors' deposits. The Mudaraba contract states that Islamic bank can only deduct the operating expenses before distributing the income to the investors and Mudarib. The total revenue and expenses of Islamic bank is $ $120,000$ and $ $110,000$ respectively. The deductible operating expenses are $65\%$ of total expenses. Find the profit distributable among the Unrestricted Investment Account holders?

Q$3)$ Mohamed enters into a Musharaka transaction with the Bank to set up a photo studio. Mohamed provides $30\%$ of the capital, and the Bank the remaining $70\%.$ The profits sharing agreement is $40\%$ for Mohamed. Mohamed$$s business done very well and make a profit AED $50,000$

a$)$ How much Mohammed should have of the profit?

b$)$ How much the Bank Should have of the profit?

c$)$ How much Mohammed contribute in the capital, if the total capital is $200000$ AED?

d$)$ How much the bank contributes in the capital, if the total capital is $200000$ AED?

e$)$ If the profit shared according to contribution in capital, how much Mohamed and the bank will get?