Finance

1. Ijarah {Islamic Leasing}
Definition of Ijarah
⚫Literally means:
To give something on rent.
⚫It isdefined as;
‘to transferthe usageof a non-consumableasset by
theowner (the lessor) toanotherperson (the lessee)
foran agreed period, atan agreed price (rent).’

2. CUSTOMER
MECHANICS
ISLAMIC BANK
 The customer approaches the Bank with the
request for financing and enters into a promise
to lease agreement.
 The Bank purchases the item required for
leasing and receives title of ownership from the
vendor
 The Bank makes payment to the vendor
VENDOR
. .
Agreement-1
Processof Ijarah

3. CUSTOMER
ISLAMIC BANK
VENDOR
 The Bank leases the asset to the customer after
performance of lease agreement.
 The customer makes periodic rental payments
as per the contract
 At the end of the tenure customer can purchase
the asset from the bank with the help of
separate Sale agreement.
MECHANICS
. .
Agreement-2
Ijarah as a mode of financing

4. Basic Rules of Ijarah
⚫Subjectof lease (Islamic)
(Should bevaluable, identified and quantified)
⚫All consumable things cannot be leased out.
(Forexample money, wheat etc.)
⚫All liabilitiesof ownership is borne by lessor
⚫Period of lease known to both parties

5. Basic Rules of Ijarah
⚫Lease forspecific purpose
(The lesseecannot use the leased asset forany purpose
other than the purpose specified in the lease
agreement.)
⚫Ijarah paymentscannot beassigned to third party.
⚫In case latepayment
Self Imposed Penalty CharityAccount

6. Basic Rules of Ijarah
⚫Lesseeas Ameen
(The lessee is liable tocompensate the lessor for
every harm to the leased asset caused by any
misuseor negligence)
⚫Determination of Rental
Must bedetermined
Variable Rentals in Long Term Leases
Lessor has right tochange
Both parties known the rent

7. Basic Rules of Ijarah
⚫Ijarah payments would bestopped if asset is outof
order.
⚫Rentshould becharged after thedeliveryof the leased
asset
⚫No hidden registration / tax related expensesand fees
⚫No hidden takaful (Insurance) payment

8. Basic Rules of Ijarah
⚫Processing fee
⚫Takaful (Insurance) 4.25%
⚫In caseof Accident (4 laccoverage)
⚫Customeras an agent can notappointed

9. Car Ijarah Requirement
You can enjoy the benefits of Car Ijarah if you:
 Are a salaried individual/ self-employed
professional/businessman
 Have two years working / professional / business
experience
 Have a net take home income exceeding three times
your monthlyrental
 Are working with your present employer for at least six
months (forsalaried individuals)

10. ⚫If you meet the requirements and wish to
apply for Car Ijarah, simply fill out an
application form and bring the following
documents to your nearest nearest Bank
branch.
⚫Application form duly filled and signed by the
applicant
⚫Copyof CNIC
⚫One recent passport sized photograph
⚫Any paid utility bill (Electric/Gas/Water) received
at the residential address
DOCUMENTS REQUIRED

11. ⚫Original orcertified copyof Recent Pay slip (for
Salaried Individualsonly)
⚫Last Six Month Bank Statement
⚫Specimen signature card duly signed & stamped by
the bank
⚫Copy of RentAgreement (if applicable)
DOCUMENTS REQUIRED

12. Key Features of Car Ijarah
⚫ Low monthly rental
⚫ Rental paid afterdelivery, not in advance
⚫ Fastestprocessing and delivery
⚫ Trackeroption available
⚫ Minimum securitydepositas low as 10%*
⚫ All new, used, local, imported and luxury vehicles
can be financed
* Conditions apply

13. Takaful instead of Insurance
⚫ Legally (in accordance to Pakistan’s Law and Regulations), it is
required for all leasing entities to insure the leased assets. As
such, Meezan Bank insures its leased assets. Meezan Bank
insured its assets through Takaful only, which is the Islamic
product for insurance.

14. Processing & vehicle valuation charges
Costof Vehicle Charges Amount(PKR)
Less than 1.00 million Processing 4,000/-
(999,999/-)
Greaterthan 1.00 million Processing 5,000/-
Domestic Vehicles - New

15. Processing & vehicle valuation charges
DomesticVehicles - Used / Imported
million
Costof Vehicle Charges Amount(PKR)
Less than 1.00 million Processing 3,000/-
(999,999/-)
Valuation 1,500/-
Total 4,500/-
Between 1.00 million & 1.5 Processing 4,000/-
Valuation 1,500/-
Total 5,500/-
Note: Valuation changes forvehicle greater than 1.5 million will becharged at actual.
Processing chargeswill remain unchanged.

16. Processing & vehicle valuation charges
Commercial Vehicles - New
Out Station Verification Charges
Costof Vehicle Charges Amount (PKR)
Less than 1.00 million Processing 4,000/-
(999,999/-)
Costof Vehicle Charges Amount (PKR)
Less than 1.00 million Processing 4,000/-
(999,999/-)

17. Basic Features - Normal Ijarah (Indus)
Parameters Details
Asset (vehicle) All variantsof Indus
Ownership Ownership lays with Meezan Bank limited
Period of facility 3, 4 & 5 years
Periodicity Pre-determined monthly rentals
Advance Rent / Securitydeposit Minimum 20% of cost of thevehicle
Maximum 50% of thecostof thevehicle
Processing charges Rs. 4,000/-
Takaful provisioning 4.25% with tracker
Tracker FreeTracker (no installation & monitoring
charges) to be installed in all vehicles.
Free Accidental Death Coverage Upto Rs. 400,000/-
Mode of payment Through post dated cheques

18. Basic Features - Suzuki
Parameters Details
Asset(vehicle) For Residual Value Ijarah: Suzuki Mehran,
Cultus, Swift, Bolan and Wagon-R
Ownership Ownership layswith MBL
Period of facility 3, 4 & 5 years
Periodicity Pre-determined monthly rentals
Advance Rent / Securitydeposit Minimum 10% of cost of the vehicle
Maximum 70% of thecostof thevehicle
Residualvalue (RV) 3 Year 5% to 55%
4 Year 5% to 50%
5 Year 5% to 50%
Processing charges Rs. 3,000/-
FreeAccidental Death Coverage Upto Rs. 400,000/-
Modeof payment Through postdated cheques / debit instruction

20. CALCULATION

21. 51
Explanation:
This clause is making selling of the leased asset contingent upon the Ijarah
agreement; therefore, the contract would be invalid.
Case:
Ijarah contract contains a clause that theasset would be sold
to the lessee after the lease period if he makes the rental
payments on time.

22. 10
Case:
The Islamic Bank has entered into a Ijarah contract with
M/s Pak Petroleum Ltd. to supply fuel worth Rs. 5 Million
for fiveyears. The rent has been fixed to be Rs. 10,000 /= per
month. Is this Ijarah contractvalid?
Explanation:
The contract is invalid because fuel cannot be rented out because it cannot
maintain its corpus when it is used.

23. 11
Explanation:
Since the subject matter is not in usable form, therefore, the rental may
start after it is in useable form i.e. after 31st March 2008.
Case:
The Islamic Bank has rented out a building to M/s Basheer
Sons on January 01, 2008. The building is underrenovation
which would finish within three months. The Ijarah
Agreement has been signed and bank is charging the rent
from thedateof signing the Ijarah Agreement.

24. 52
The bank leases a machinery to Mr. B for 5 years. The rent
forthe firstyear is fixed as Rs. 20,000/- per month and it is
agreed that the rent of every subsequentyearshall be 10%
more than the previousone.
Explanation:
The lease is valid since the rents have been fixed at the beginning of the
Ijarah period.
Case: