Liability of the Investment Manager — practice questions

Correct answer: D. Clauses 2 and 4/3/1: An investment manager is anyone who invests the funds of another with his permission, in the forms of Mudarabah, investment agency (Wakalah bi al-Istithmar) and authorisation of a partner to invest partnership funds. A service agent is someone whose duties are confined to non-investment services, such as leasing, insuring or maintaining assets or collecting revenues, and who neither acts as Mudarib, managing partner or investment agent nor makes investment decisions.

Correct answer: A. Clauses 3/1 to 3/4: The investment manager’s possession is fiduciary, so he is liable only for misconduct, negligence or breach of conditions. It is not permitted to stipulate absolute liability on him or for him to volunteer to assume the risk at the time of contracting, nor to undertake it explicitly or implicitly after contracting. Following the occurrence of a total or partial loss, however, he may voluntarily assume liability of his own free will.

Correct answer: C. Clause 3/5/1: A prohibited form of assuming liability is an undertaking by the investment manager to purchase the assets from Rab al-Mal, e.g. from holders of Mudarabah, Musharakah or Wakalah Sukuk, at a price specified at contracting. It is permitted, however, if the undertaking is to purchase at the net asset value, market value, fair value, or a price agreed at the time of purchase (see Clause 3/1/6/2 of Shari’ah Standard No. (12)).