Conversion of a Conventional Bank to an Islamic Bank — practice questions

Correct answer: B. Clause 2/2: If the bank did not decide on an immediate and comprehensive conversion as per Clause 2/1 and adopted a gradual or partial conversion, it is not regarded as a converted bank and may not be granted a licence as an Islamic bank unless the conversion process is completed. The shareholders are required to accelerate the process to free themselves from the sin of impermissible activities. Activities of Islamic windows or departments are outside the scope of the Standard (Clause 1).

Correct answer: D. Clause 2/1: All Shari’ah requirements must be executed in converting a conventional bank, and new transactions must observe Shari’ah rules. In principle, transactions concluded before the decision to convert must be ceased or disposed of immediately, and it is not permissible to delay clearing out non-permissible transactions unless the delay becomes a necessity or a pressing need. The circumstances of the conversion must be considered so as to avoid the risk of failure or breakdown of the bank’s operations.

Correct answer: A. Clause 8/1/1: If a conventional bank is acquired with the intention to convert it to an Islamic bank, the new owners are not obliged to dispose of interest and impermissible earnings that were earned before the acquisition. By contrast, where the existing shareholders convert the bank, disposal is treated as commencing at the start of the financial period in which conversion takes effect (Clause 8/1/2).