Syndicated Financing — practice questions

Correct answer: C. Clauses 5/1 to 5/3: Syndicated financing originally takes place among Islamic financial institutions, but conventional banks may participate provided subscription and use of funds follow Shari’ah-compliant forms. The syndication should originally be led by an Islamic institution; however, there is no Shari’ah restriction on a conventional bank leading it and setting up its management mechanisms, alone or with Islamic institutions, provided the contracts, the projects financed and the modes of financing are all Shari’ah-compliant.

Correct answer: A. Clause 5/5: Islamic institutions are not prohibited from providing syndicated financing for certain parts of a project whose remaining parts are financed from other sources through conventional modes, on condition that the accounts and lead manager arrangements of the two types of financing are kept separate. Usurious lending and borrowing remain impermissible, and responsibility for them falls on the party that commits them, not on the Institutions financing the separate Shari’ah-compliant tranche.

Correct answer: D. Clause 5/4: Arrangement, implementation and follow-up of syndicated financing should take place under the supervision of the Shari’ah Supervisory Boards of the participating Institutions. Preferably, a joint committee of these boards is formed and delegated to make decisions that become binding on all parties. Clause 3 further requires syndicated funds to be directed only to Shari’ah-permissible activities, and Clause 4 lists the permissible modes, including Murabahah, Ijarah, Salam, Istisna’a, Mudarabah and investment Sukuk.