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190717 ijarah accounting v7

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  • 1. IJARAH ACCOUNTING FIN6650 Group Project 1
  • 2. Prepared for Dr. Noraini Mohd Ariffin Prepared by: Abdul Ghoni G1036443 Delil Khairat G1027047 Hashim Ahmad Shiyuti G1021697 Mahamat Al Mourtada G1114142 2
  • 3. Contents Introduction Literature Review Assessment on Current Ijarah Product (AITAB) Detail Comparisons of Ijarah Accounting Among Malaysian Islamic Banks Proposed All New AITAB Conclusion 3
  • 4. Introduction • a contract under which one party obtains the right of usufruct of an asset owned by another party for an agreed period against an agreed consideration namely rent. Ijarah • Sales: the corpus of property is transferred to the purchaser • Ijarah: only its usufruct is transferred, the corpus remains in the ownership of the lessor. Ijarah v.s. Sales • a type of lease contract, which concludes with the purchase of the asset. • It combines a lease contract and sale contract in one trading document, but the contract of leasing and sale work separately. • The asset comprises of Machinery, Equipment, Software and Hardware or Motor Vehicles which are Non-Hire Purchase Act good Al-Ijarah Thumma Al-Bai (AITAB) 4
  • 5. Nature of Conventional Lease: Trading or Financial Activity? • An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time (IAS 17 (revised); MASB 10) Lease • A lease that transfers substantially all risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred (IAS 17 (revised); MASB 10, para 3) Finance Lease • A lease other than a finance lease and does not involve substantial transfer of risks and reward incident to ownership. Operating Lease Financial lease extent the scope and function of lease beyond the trading function and allow lease to be more flexible. 5
  • 6. Operating Lease vs Financial Lease Aspect Operating Lease Financial Lease Ownership of the asset Both legal and beneficial ownership are with the lessor. The lessor only possessed the beneficial ownership of the asset. Maintenance obligations The lessor is still fully obligated in administrative affairs and basic maintenance of his asset, whereby the lessee will only be liable on the daily maintenance of the asset. He then has to pay rental payment as agreed in the agreement. The lessor will transfer almost his entire original obligation on the asset to the lessor. Thus, responsibility on the asset insurance, quit rent etc is on the shoulder of the lessee. Risks Any risk such as a small damage (which is not caused by the lessee’s negligence) on the asset will be under the responsibility and liability of the lessor. All types of risks whether it is caused by the negligence of the lessee or otherwise, is under the responsibility of the lessee. Termination Can be terminated anytime with the consent of both parties without having to pay any indemnity or compensation or the sum of arrears of the rent (depending upon the terms of the contract). After the termination of the contract, the asset will be reverted back to the owner of the asset as usual. Can be terminated but the lessee must pay all the arrears of the rent in one lump sum. Then, the asset will be reverted back to the lessor fully. This is the motive and the objective of this type of lessee. 6
  • 7. Introduction AITAB in Malaysia Client identifies and approaches vendor of the Asset The dealer prepares all related AITAB documents, as the agent of the Bank The car will be delivered to the client, commencing rental payment. Upon completing all the agreed payment, both parties shall enter into another agreement in which the customers pay a nominal amount of RM1 signifying sale contract. If the customer defaulted, bank can take an action against him and repossess the asset 7
  • 8. Literature Review The Objective of Shari’ah Mustafa Omar & Dzuljastri • Almost all the scholars of Maqasid are unanimous about the general objectives of al- Shari’ah, which are to promote welfare (Jalb al- Masalih) and avoid vices (Dar’ al- Mafasid) (Ibn Ashur, 1998, p.190). Imam Al-Gazali • in safeguarding the 5 from religion to wealth. • Dusuki pointed out that Al- Shatibi approves al-Ghazali’ list and sequence. • Each of the worldly purposes (preservation of faith, life, posterity, intellect and wealth) is meant to serve the single religious purpose of the Hereafter (Nyazee, 2000) QS 59:7 • Wealth circulation among the people either for the purposes of consumption or investment. • Among the means to achieve such an objective are the doctrine on the prohibition of riba, hoarding and monopoly of wealth. • Innovation and all endeavors of a new product must comply with Maqasid of the Shariah • If such dharurah hypothetically exists, then it would rather legitimize dealing with conventional finance directly. (Dusuki 2009) • it is widely felt that its time to apply the principle of sadd al-dhara’ that close the potential avenues for circumventing the law (Hassan, Zubair 2005) 8
  • 9. Literature Review Issue Highlighted by Scholars on AITAB Originally introduced as contracts between two parties both ijarah and murabahah ended up in the form of securities. Bypassing controversies around operating leases versus financial leases (Siddiqi: 2005b). According to contemporary jurists and experts on Islamic finance, ijarah has great potential as an alternative to interest in respect of evolving a shari’ah compliant financial system. (Ayub). The problem and issues related to AITAB are as follows (Nurdianawati Irwani): • Customer's attitude towards the facility. • Inexperienced bank officers • Non-cooperative dealers • Documentation and stiff competition in the market. 9
  • 10. Literature Review Issue Highlighted by Scholars on AITAB • It results in more risks, liabilities, and responsibilities that most banks would attempt to avoid as much as possible methods of transferring ownership. • There are some scholars who argue that the second contract should grant a call option to the hirer to eventually acquire the asset after completing the ijarah contract (Bughuddah, 2001; Elahi, 2000; Salleh, 1986). Ownership • the owner must remain liable for basic maintenance, although this term is often difficult to differentiate with clarity from operational maintenance, which is the responsibility of the hirer (Belder, 2004). Maintenance • Generally speaking, an act of default in due payment signifies a breach of contract. When two parties or more enter into a valid contract, they will be bound by terms and conditions in the contract. Breaching any of these terms will cause the innocent party to suffer a loss that needs to be compensated (Baharum, 2000). • There are mixed reactions from the scholars. Some of them give a very strict rule that penalty for late payment of rentals is not permissible (Hairetdinov, 1998; Meezan Bank, 2004; Usmani, 2002) Penalty in case of default. • Islamic hire purchase is unfortunately lacking in an explicit Shari’ah regulatory framework. Any dispute arising from the transaction of Islamic hire purchase will be referred to the conventional regulations (Ismail, 1999) Legal Treatment 10
  • 11. •assets and expenses need to be recorded in the bank’s book •a conventional leasing financing involves the effective transfer of all risks and rewards associated with the ownership to the lessee’ (ayub 288) •Even it is becoming worst when the said asset is only registered the title but not recorded in the bank’s book/statements •The effect of the ownership will lead to the increase profitability of the banks and reduce the company’s/client’s profit. •The depreciation of the banks will reduce since the assets are not recorded in their account and the vice versa for the books of client Recording Issues •The profit charged must be based on the rental rate, not on the interest •The rental rate is based on real assets and the interest rate is independent from the assets factor. •Mirroring to the conventional financing leads to serious issue i.e. the dependability to the interest rate. •The interest rate is not based on the real assets value. The charges will be similar nor matter where is the location or type. The real assets value in which the rate will be determined by the market forces Rental rate v.s. Interest rate •Elimination of khiyar al-‘ayb or the option of defect to the lessee. •Mejelle:“any buyer in Islamic law has an automatic implied warranty against latent defects in the goods purchased” Combining Contract •Ijarah is a binding contract (cannot be revoked unilaterally) Ayub pg 286 •Contract of ijarah will be automatically terminated if the property is damaged and can not give further benefit •In current AITAB implementation, a lessee is responsible to pay the rental up to the period of the repossession by the bank (lessor). •A lessee is also responsible to pay for the all the cost of the repossession •A lessor will revalue the assets and the revalued amount will be used in determining the net payment need to be done by the lessee before terminating the contract •= Total AITAB Financing – Ijarah installment – all related cost (repossession related cost) – revaluation of the assets = Outstanding to be made in clearing the contract. •a few issues need to be highlighted:- •The calculation of termination is similar to the normal conventional financing. •The basis of loan calculation being used in determining the financing settlement Termination/ Repossession AITAB is using HPA 1967 which is totally unislamic….why not islamic Issues Assessment on Current Ijarah Product (AITAB) in the Market 11
  • 12. Frequency of Appearances in Islamic Banks Website Ijarah vs Leasing vs Hire Purchase No. Name Ijarah and/or AITAB Conventional Terminology 1. Bank islam Malaysia Berhad 4 (2 english and 2 malays Lease – 18 Leasing – 2 Hire purchase – 0 2. Bank Muamalat 6 Lease – 14 Leasing – 7 Hire purchase -12 3. Amislamic bank berhad 2 Lease – 5 Leasing- 0 Hire purchase – 2 4. Alrajhi Banking & Investment Corporation (Malaysia) Berhad 1 Lease – 7 Leasing 0 Hire purchase – 0 5. Affin Islamic Bank Berhad 4 (2 in annual report and 2 in brochure inside the annual report) Lease – 3 Leasing – 0 Hire purchase – 3 12
  • 13. 6. Alliance Islamic Bank Berhad 2 Lease – 75 Leasing -2 Hire purchase – 10 7. Maybank Islamic Berhad 0 Lease – 0 Leasing -0 Hire purchase – 0 8. Public Islamic Bank Berhad 3 Lease – 6 Leasing – 1 Hire purchase - 17 9. Kuwait Finance House 33 Lease – 14 Leasing – 3 Hire purchase – 1 13 Frequency of Appearances in Islamic Banks Website Ijarah vs Leasing vs Hire Purchase
  • 14. 10. CIMB Islamic Bank 7 Lease – 45 Leasing – 0 Hire purchase – 5 11. Hong Leong Islamic Bank Berhad 0 Lease – 0 Leasing - 0 Hire purchase – 0 12. RHB Islamic Bank Berhad 1 Lease – 16 Leasing -2 Hire purchase – 4 13. HSBC Amanah Malaysia Berhad 3 (put on bracket as a lease or hire purchase) Lease- 19 Leasing – 1 Hire purchase- 4 14 Frequency of Appearances in Islamic Banks Website Ijarah vs Leasing vs Hire Purchase
  • 15. Ijarah vs Leasing vs Hire Purchase 14. Standard Chartered Saadiq Berhad 0 Lease- 0 Leasing – 0 Hire purchase- 0 15. Bank Kerjasama Rakyat Malaysia Berhad 2 lease– 106 Leasing – 0 Hire purchase – 1 16. Asian Finance Bank Berhad 0 Lease – 0 Leasing -0 Hire purchase – 0 15
  • 16. Ijarah vs Leasing vs Hire Purchase Overall, all the Islamic banks are willing to use the conventional term i.e. lease/leasing and hire purchase instead of ijarah terminology. Yes, it is only a matter of terminology but the impact is very big. The standardization of terminology will lead to a common understanding. A common understanding will make the concept of all ijarahs will be understandable across the board. 16
  • 17. Ijarah vs Leasing vs Hire Purchase The mirroring to the conventional terms will lead to the misconception in a lay man’s head in which the conventional understanding of leasing will come first and this will indoctrinate his mind. -- We are instructed to talk based on their understanding. It is a hadith narrated by Ad-Dailami with sanad dhaif from ibn Abbas This hadith shows that, it is important to have the common understanding between the communicators and the recipients. 17
  • 18. Detail Comparisons Among Malaysian Islamic Banks: Aspects Analysed 1. Purchase and Leasing of Ijarah Asset 2. Off Balance Sheet Statements 3. Treatment on the disposal or sale of Ijarah Asset 4. Expenses Incurred by Lessor and Depreciation of Ijarah Assets 5. Ijarah Rental Received 6. Material and Immaterial Direct Cost 18
  • 19. Details Comparisons 1.Purchase of Ijarah Asset & Leasing Ijarah Asset Ijarah assets do not register in Bank’s Statement of Financial Position. Prepaid lease payment is considered as bank’s assets in the Balance Sheet. Amortisation of prepaid lease payment in the statement of cash flow. The Ijarah assets do not register in Bank’s Statement of Financial Position The assets consider as a normal financing assets The Ijarah assets do not register in Bank’s Statement of Financial Position The assets consider as a normal financing assets The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets Does not match with the off balance sheet statements 19
  • 20. Details Comparisons 1.Purchase of Ijarah Asset & Leasing Ijarah Asset The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets Does not match with the off balance sheet statements The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets. The bank combined both Ijarah Muntahiyah Bi Tamlik and AITAB under one category. Under the notes of account – the bank recognizes the Ijarah assets financing The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets 20
  • 21. Details Comparisons 1.Purchase of Ijarah Asset & Leasing Ijarah Asset The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets. The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets The Ijarah assets do not register in Bank’s Statement of Financial Position. The assets consider as a normal financing assets 21
  • 22. Details Comparisons 2.Off Balance Sheet Statements Leased assets/Leasehold land that normally has an indefinite economic life and the title is not expected to be passed to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted for as prepaid lease payments. The prepaid lease payments are amortised on a straight-line basis over the lease term. There is no specific information provided for leased assets. There is no specific information provided for leased assets. The needs to follow the FRS117 in which to include the investment properties held under lease based on the finance lease accounting technology There is a statement on the recognition on income in which will be based on contractual agreement There is a clear statement by the bank that they are following BNM/GP8-i in recognizing the financing income by using the effective income rates 22
  • 23. Details Comparisons 2.Off Balance Sheet Statements The needs to follow the FRS117 in which to include the investment properties held under lease based on the finance lease accounting technology The bank clearly defined the meaning of operating and financing lease. In the notes to the account, the bank is offering two types Ijarah i.e. AITAB and Ijarah Muntahiyyah Bi-Tamleek. But the accounting treatment is the same. In the notes to the account, the bank is offering two types Ijarah i.e. AITAB and Ijarah Muntahiyyah Bi-Tamleek. But the accounting treatment is the same. The bank do lease a few asset from others under the term of Operating Lease The needs to follow the FRS117 in which to include the investment properties held under lease based on the finance lease accounting technology There is a statement on the assets sold under lease which being classified into finance lease and operating lease There is a statement of combination between Ijarah Muntahiyyah Bittamlik and AITAB 23
  • 24. Details Comparisons 2.Balance Sheet Statements In general, the reporting is much more similar to conventional concept except the terminology and name of the products. A clear statement on the treatment of income and expense for operating lease is given. Operating Leases Leases, where the the Bank does not assume substantially all the risks and rewards of ownership, are classified as operating leases and the leased assets are not recognised in the statement of financial position of the Bank. Rentals payable under operating leases are accounted for on a straight line basis over the periods of the leases unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed and are recognised in profit or loss under “General administrative expenses.” Abdul Rahim Abdul Rahman, 2012, pg 139 ‘This contract has not involved the transfer of ownership to the other party as there has been no intention to purchase or to own the ijarah object by the interested part (operating Ijarah) Is there any definition gap between the two? N/A The needs to follow the FRS117 in which to include the investment properties held under lease based on the finance lease accounting technology N/A 24
  • 25. Details Comparisons 3.Treatment on the Disposal or Sale of Ijarah asset No provision being made as all the costs being transferred to the lessee. No information available for the disposal activity. No information available for the disposal activity. No information available for the disposal activity. No information available for the disposal activity. There is a statement saying that the disposal of the prohibited means being done as much as RM290,417.77 in that particular of period. 25
  • 26. No information available for the disposal activity. No information available for the disposal activity. No information available for the disposal activity. There is information regarding the disposal activity of the assets but there is no specification regarding the disposal of Ijarah assets. There is information regarding the disposal activity of the assets but there is no specification regarding the disposal of Ijarah assets. Details Comparisons 3.Treatment on the Disposal or Sale of Ijarah asset 26
  • 27. There is no specification regarding the disposal of Ijarah assets. There is no specification regarding the disposal of Ijarah assets There is no specific information regarding the disposal of Ijarah assets. There is no specific information regarding the disposal of Ijarah assets. There is no specific information regarding the disposal of Ijarah assets. There is no specific information regarding the disposal of Ijarah assets. Details Comparisons 3.Treatment on the Disposal or Sale of Ijarah asset 27
  • 28. Details Comparisons 4.Expenses Incurred by Lessor and Depreciation of Ijarah Asset The Group and the Bank have lease commitments in respect of vehicle and equipment on hire, all of which are classified as operating leases. A summary of the non-cancellable long term commitments. Lease commitments on Operating Lease . No provision being made for financing lease. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. The only direct operating expenses incurred in conjunction with rental income is for investment properties. No depreciation of ijarah assets available in the book of lessor No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor 28
  • 29. Details Comparisons 4.Expenses Incurred by Lessor and Depreciation of Ijarah Asset No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor 29
  • 30. Details Comparisons 4.Expenses Incurred by Lessor and Depreciation of Ijarah Asset No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. No expenses being recorded for Ijarah assets. No depreciation of ijarah assets available in the book of lessor. 30
  • 31. Details Comparisons 5.Ijarah Rental Received The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOFI. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOFI. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOFI. There is information on the advance rental paid by the customers recorded in the statements. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOFI. There is information on the advance rental paid by the customers recorded in the statements The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOFI. The recorded rental is only for the operating lease. 31
  • 32. Details Comparisons 5.Ijarah Rental Received The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. 32
  • 33. Details Comparisons 5.Ijarah Rental Received The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. N/A The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. The rental income being lump together with the other financing income. The treatment is similar to conventional hire purchase recognition. Not compliant with AAOIFI. 33
  • 34. Details Comparisons 6.Material and Immaterial Direct Cost No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. 34
  • 35. Details Comparisons 6.Material and Immaterial Direct Cost No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. 35
  • 36. Details Comparisons 6.Material and Immaterial Direct Cost No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. No provision being made as all the costs being transferred to the lessee. 36
  • 37. An Interview with RHB Islamic Officer  There is an information and experience gap between the shariah people and the operational players.  Technically, there is no much different in accounting recording and transaction for conventional hire purchase and Ijarah thummal bai (AITAB) . The different between these two transactions are occurred prior to accounting transaction to be happened, thus the final recording will not much different from the conventional.  In the issue of pricing, majority of Islamic financing and banking product are mirroring the conventional counterpart. This issue was contributing a big chunk of problems to the Islamic banking and finance industry. 37
  • 38. Sample Accounting Mapping 38
  • 39. Sample Accounting Mapping 39
  • 40. Sample Accounting Mapping 40
  • 41. Proposed All New AITAB •Recording the asset in the bank Balance Sheet. •Depreciating the asset by the Bank •Bank bears all costs, risks and rewards related to the ownership e.g. maintenance cost, regular services, spareparts replacement, takaful contribution, road tax etc. Full recognition of ownership by the Bank •directly relates to the usage of asset e.g. fuel cost, car wash etc. •arise out of lessee’s negligence or mistake e.g. fine due to speeding in high way. Costs under Lessee responsibility •adopting the principles of IMBT as much as possible in its practice. •Rental fee = costs + profit margin •No benchmark to irrelevant interest rate. It’s an operating lease! •Lessee will have the option to exercise or not •If lessee does not want to own the vehicle, should not create any problem since Bank has professional capability of running car rental business. Transfer of ownership on unilateral promise •Bank has right on outstanding rental fee up to the date of asset returned •No further amount due related to expected profit or interest earned •Part of the risk the bank to bear. •With its rental operation capability, Bank can utilize the repossessed asset and generate income from it. Default -> Asset is returned to the Bank ProblemswithAITAB SOLUTIONS:BacktoOperatingLease 41
  • 42. All New AITAB: Consequences, Pros & Cons • Too large deviation? • Abolishment of riba and loan based transaction lead to wider role to be played by Islamic banks (Universal Bank) • How? • division or subsidiary • collaboration with professional car rental, garage and takaful operator Islamic Bank to retain capabilities of professional car rental company • All new AITAB ≠ Conventional Hire- Purchase • Competition is irrelevant because All New AITAB delivers more value added or services Less competitive than conventional hire purchase? • Reckless use of the car? • Can be reduced by: • proper management and control • Well-drafted contract • Car will be owned by the Lessee Less sense of belonging • Islamic concepts are different form conventional • Conventional regulation framework will not suit Islamic financial institution Regulatory Issue AllNewAITAB 42
  • 43. Conclusions  The core issue is recognition of asset. Under shariah compliant leasing (Operating Ijarah and Ijarah Mumtahia BilTamleek), Ijarah asset and expenses should be borne by the lessor (Bank).  Accounting treatments on Ijarah (AITAB) implemented by all Malaysian banks have no difference from conventional hire- purchase i.e. Banks do not recognize asset and expenses. Therefore, the financial statements do not truly and fairly reflect the Shariah rights and obligations of the parties.  To solve the problem, Islamic Banks need to revamp their Ijarah product to be inline with Operating Ijarah or IBMT with all consequences. However, regulatory framework needs also to be reviewed to support this development. 43

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