Two Days Specialized Training Workshop On Islamic
Microfinance

Ijara
Abdul Samad
AlHuda CIBE
What is Ijara?
 Transferring

of usufruct of an asset to
another person for an agreed period, at an
agreed consideration
Basic Rules of Ijara
Anything, which cannot be used without
consuming, cannot be leased out. e.g. Money,
wheat etc.

Lea...
Basic Rules of Ijara
It is necessary for valid lease that the
corpus of the leases property remains in the
ownership of th...
Liabilities of Parties
 Lessor

Responsibilities:

Since corpus of leased property remains in
the ownership of the less...
Lessee Responsibilities:
Being user of the lease asset lessee
can be made liable to any normally
occurring wear and tear.
...
Lessee as Ameen:
The lessee is liable to compensate the
lessor for every harm caused to the leased
asset by his misuse or ...
Rental
    The  rental  must  be  determined  at  the  time  of 

contract for the whole period of lease.
   It  is  p...
Rental
        A  lease  contract  can  have  a  condition  that 

the rent shall be increased according to a specified ...
In Case of Late Payment
       The lessor cannot charge an additional 

amount in case the lessee delays payment of 
the...
Insurance of the Assets
it  is  required  for  all  leasing 
companies  to  insure  the  leased  asset. 
Presently  Islami...
Termination: contractual
    Lease is binding contract.

  It  cane  be  terminated  by  mutual 
consent.
  The  lesso...
Termination: contractual
    With total destruction of the leased asset
     Upon the expiry of term.
   Two  partie...
Difference Between
Murabaha and Ijara
Murabaha  is  permissible  for  consumable 
and  non-consumable  assets  while  Ijar...
Difference Between
Murabaha and Ijara
 A 

Murabaha  cannot  be  transacted  on  a 
future  date,  as  the  sale  would  ...
Difference Between
Murabaha and Ijara
1.



In Murabaha once the sale is completed the
entire risk is shifted to the purc...
Difference Between Ijara
and Conventional lease
1.





There are two types of contracts. Financial lease
and loan for ...
Difference Between Ijara
and Conventional lease
1.


2.



In Conventional Car Loan the costumer is
responsible for all ...
Difference Between Ijara
and Conventional lease
1.



If the leased vehicle is stolen or completely
destroyed the convent...
Difference Between Ijara
and Conventional lease
1.



In most contemporary lease an extra amount is
charged if rent is no...
Difference Between Ijara
and Conventional lease
1.

2.



The Insurance expense of the asset is directly
borne by the le...
ISSUES RELATE TO IJARAH
Expenses Related To
Ownership
Issue
In certain transaction of Ijarah,
all expenses related to the
ownership is born by the...
Recovery of Rental
Issue
The banks start recovering the
rental as soon as he disburses
the amount to the supplier and
befo...
Increase in Price of Ijarah
Asset
Issue
When the price increases
before Ijarah Agreement,
customer pays the short fall
wit...
Sale and Lease Back
Issue
Solution
We have noted that bank enter 1. For
just
liquidity
into the sale and lease back
requir...
Sale and Lease Back
Issue
Solution
We have noted that bank enter 1. For
just
liquidity
into the sale and lease back
requir...
Sale and Lease Back
Issue
The sale and lease back
transaction without signing
proper sale agreement with
the customer befo...
192 Ahmad Block, New Garden Town, Lahore - Pakistan.
Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056
Email: info@alhudaci...
3rd Global Islamic Microfinance Forum' 2013
3rd Global Islamic Microfinance Forum' 2013
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3rd Global Islamic Microfinance Forum' 2013

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AlHuda-Centre of Islamic Banking and Economics (CIBE) is a well known name in Islamic Banking and Finance sector which focuses on training, awareness, advisory and publications on Islamic Banking & Finance in order to promote the industry. AlHuda CIBE has organized a successful Conference "3rd Global Islamic Microfinance Forum" held on 6th & 7th October, 2013 in Dubai. AlHuda CIBE is very much pleased to share the topics and presentations being held in the Forum.

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  • 3rd Global Islamic Microfinance Forum' 2013

    1. 1. Two Days Specialized Training Workshop On Islamic Microfinance Ijara Abdul Samad AlHuda CIBE
    2. 2. What is Ijara?  Transferring of usufruct of an asset to another person for an agreed period, at an agreed consideration
    3. 3. Basic Rules of Ijara Anything, which cannot be used without consuming, cannot be leased out. e.g. Money, wheat etc.  Leasing is not originally a mode of financing but it is a sale transaction. So all basic elements of lawful sale transaction must be present.   It is necessary for valid lease that the leased asset is fully identified by the parties. 
    4. 4. Basic Rules of Ijara It is necessary for valid lease that the corpus of the leases property remains in the ownership of the lessor.   The period of lease must be determined in clear terms.  The lease period shall start from the date on which the leased asset has been delivered. 
    5. 5. Liabilities of Parties  Lessor Responsibilities:  Since corpus of leased property remains in the ownership of the lessor therefore all liabilities of ownership are borne by lessor.  Expenses:  As the lessor is the owner of the asset he is liable to pay all the expenses incurred in the process of its purchase and its import to the country of the lessor example expenses of shipment and customs duty etc.
    6. 6. Lessee Responsibilities: Being user of the lease asset lessee can be made liable to any normally occurring wear and tear.  The lessee cannot use the leased asset for any purpose other then the purpose specified in the lease agreement.  If no such purpose is not specified in the agreement, the lessee can use it for whatever purpose it is use in normal course. 
    7. 7. Lessee as Ameen: The lessee is liable to compensate the lessor for every harm caused to the leased asset by his misuse or negligence. 
    8. 8. Rental     The  rental  must  be  determined  at  the  time  of  contract for the whole period of lease.    It  is  permissible  that  different  amount  of  rent  are  fixed  for  different  phases  provided  that  the  amount  of  rent  for  each  phase  is  specifically  agreed upon at the time of affecting a lease.     The lessor cannot increase the rent unilaterally  and any agreement to this effect is vied.
    9. 9. Rental         A  lease  contract  can  have  a  condition  that  the rent shall be increased according to a specified  proportion (e.g. 5%) after a specified period (like  one year).        The rent or any part thereof may be payable  in  advance  before  the  delivery  of  the  asset  to  the  lessee,  but  that  amount  so  collected  by  the  lessor  shall  remain  with  him  as  Amana  and  shall  be  adjusted towards the rent after its being due.
    10. 10. In Case of Late Payment        The lessor cannot charge an additional  amount in case the lessee delays payment of  the rent.       Penalty  of  late  payment  is  given  to  charity by lessee.
    11. 11. Insurance of the Assets it  is  required  for  all  leasing  companies  to  insure  the  leased  asset.  Presently  Islamic  banks  insure  its  leased  assets.  However  our  BoK  Ijara  policy  clearly  stated  that  BoK  will  use  Conventional  Insurance  as  long  as  Takaful  is not available.   Legally, 
    12. 12. Termination: contractual     Lease is binding contract.   It  cane  be  terminated  by  mutual  consent.   The  lessor  may  terminate  it  when  the  lessee doesn’t pay the rent or fails to pay it  on time or because of violation of any other  term and condition of the agreement.    
    13. 13. Termination: contractual     With total destruction of the leased asset      Upon the expiry of term.    Two  parties  may  terminate  it  before  it  begins to run.  
    14. 14. Difference Between Murabaha and Ijara Murabaha  is  permissible  for  consumable  and  non-consumable  assets  while  Ijara  is  permissible  in  non-consumable  assets  only.  2. Murabaha  attributed  to  future  date  is  invalid  in  Shariah.  But  leasing  can  be  attributed to a future date. 1.
    15. 15. Difference Between Murabaha and Ijara  A  Murabaha  cannot  be  transacted  on  a  future  date,  as  the  sale  would  be  executed  simultaneously  after  taking  delivery  from  the supplier. But in leasing it is permissible,  because  in  leasing  the  assets  remain  under  the  risk  and  ownership  of  the  lessor  throughout the leasing period.
    16. 16. Difference Between Murabaha and Ijara 1.  In Murabaha once the sale is completed the entire risk is shifted to the purchaser while in lessee only usufruct is transferred to the lessee and risks remain with the lessor. In Ijara if the lessee acts as the bank’s agent and makes payment he is not required to inform the bank that he has taken possession as is the case in Murabaha but once he has taken possession the rent will start immediately.
    17. 17. Difference Between Ijara and Conventional lease 1.    There are two types of contracts. Financial lease and loan for a car financing. Both these contract contain conditions, which are unlawful. Financing lease contain conditions of hire and purchase, which in not permissible in Shariah. Car financing or loan agreement contains condition of interest. Ijara contract doesn’t contain any condition that makes the transaction void in Shariah
    18. 18. Difference Between Ijara and Conventional lease 1.  2.  In Conventional Car Loan the costumer is responsible for all kind of loss or damage in the vehicle, irrespective of the circumstances being in his control. In Ijara all risk pertaining to ownership are borne by lessor. If the insurance company doesn’t compensate the entire outstanding amount in case of total loss, the customer is liable to pay the balance. In Ijara lessor bears the risk of insurance claim settlement.
    19. 19. Difference Between Ijara and Conventional lease 1.  If the leased vehicle is stolen or completely destroyed the conventional leasing company would continue charging the lease rent till the settlement of the total loan. Under Islamic system rent is consideration for usage of the leased asset and if the asset has been stolen or destroyed the concept of rental become void.
    20. 20. Difference Between Ijara and Conventional lease 1.  In most contemporary lease an extra amount is charged if rent is not paid on time. This extra amount is the considered Riba and is Haram. This amount is taken by the leasing institution into their income. Under Ijara the lessee may be asked to undertake that if he fails to pay rent on its due date, he will pay a certain amount to charity.
    21. 21. Difference Between Ijara and Conventional lease 1.  2.  The Insurance expense of the asset is directly borne by the lessee. Takaful / insurance should be at the expense of the lessor and not at the expense of the lessee. Under conventional leasing contract the vehicle is automatically transferred in the name of the customer upon the completion of the lease period whether or not he want to purchase it. Under Ijara at the end of Ijara agreement the customer is not obliged to purchase the vehicle.
    22. 22. ISSUES RELATE TO IJARAH
    23. 23. Expenses Related To Ownership Issue In certain transaction of Ijarah, all expenses related to the ownership is born by the customer. Solution All expenses other than expense related to normal wear and tear of the Ijarah asset should be born by the bank and may be included into the list price of Ijarah assets.
    24. 24. Recovery of Rental Issue The banks start recovering the rental as soon as he disburses the amount to the supplier and before actually receiving the Ijarah asset by the customer. Solution The banks should recover rentals only after the delivery of vehicle. It is an unanimous opinion of all the Sharaih Scholars that it is not allowed to recover rentals before delivery.
    25. 25. Increase in Price of Ijarah Asset Issue When the price increases before Ijarah Agreement, customer pays the short fall without getting joint ownership. Solution In all such cases, bank should give the proportionate owner in the Ijarah asset.
    26. 26. Sale and Lease Back Issue Solution We have noted that bank enter 1. For just liquidity into the sale and lease back requirement this transaction for just fulfilling the transaction should not be liquidity requirement of the allowed. client. 2. Therefore, banks should consult Shariah Adviosr in every case. 3. This transaction should be allowed only for paying conventional debts.
    27. 27. Sale and Lease Back Issue Solution We have noted that bank enter 1. For just liquidity into the sale and lease back requirement this transaction for just fulfilling the transaction should not be liquidity requirement of the allowed. client. 2. Therefore, banks should consult Shariah Adviosr in every case. 3. This transaction should be allowed only for paying conventional debts.
    28. 28. Sale and Lease Back Issue The sale and lease back transaction without signing proper sale agreement with the customer before the execution of Ijarah agreement. Solution The bank should execute the proper sale agreement with the customer before entering into lease agreement. Otherwise the transaction becomes questionable in the eyes of Shariah.
    29. 29. 192 Ahmad Block, New Garden Town, Lahore - Pakistan. Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056 Email: info@alhudacibe.com www.alhudacibe.com

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