AlHuda CIBE - Presentation on Pratical ijarah

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Practical Car IjarahPractical Car Ijarah

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Leasing/Ijarah ContractLeasing/Ijarah Contract
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
There are two types of contracts,There are two types of contracts,
Financial lease and loan for carFinancial lease and loan for car
financing. Both these contractsfinancing. Both these contracts
contain conditions that arecontain conditions that are
contravenes with the Islamiccontravenes with the Islamic
Sharia'h.Sharia'h.
Financing lease contains conditionsFinancing lease contains conditions
of hire purchase, which is notof hire purchase, which is not
permissible by Sharia'h.permissible by Sharia'h.
Car financing or loan agreementCar financing or loan agreement
contains conditions of interest.contains conditions of interest.
Interest is consideredInterest is considered RRibaiba byby
Sharia'hSharia'h
The Ijarah contract does notThe Ijarah contract does not
contain any condition that makescontain any condition that makes
the contract void under Sharia'hthe contract void under Sharia'h
perspective.perspective.

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Rights & Liabilities of Lessor and LesseeRights & Liabilities of Lessor and Lessee
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
In Conventional Leasing Products,In Conventional Leasing Products,
the Customer is responsible for allthe Customer is responsible for all
kinds of losses or damages to thekinds of losses or damages to the
Leased asset, irrespective of theLeased asset, irrespective of the
circumstances.circumstances.
If the insurance company does notIf the insurance company does not
compensate the entire outstandingcompensate the entire outstanding
amount in case of total loss, theamount in case of total loss, the
customer is liable to pay thecustomer is liable to pay the
balance.balance.
All risks pertaining to ownershipAll risks pertaining to ownership
are borne by Lessor.Customerare borne by Lessor.Customer
only bears usage-related risksonly bears usage-related risks
Lessor bears the risk of InsuranceLessor bears the risk of Insurance
claim settlement.claim settlement.

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Rentals recovery in case of theft and lossRentals recovery in case of theft and loss
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
If the Leased Asset is stolenIf the Leased Asset is stolen
or completely destroyed, theor completely destroyed, the
conventional leasing companyconventional leasing company
or Bank would continueor Bank would continue
charging the lease rent till thecharging the lease rent till the
settlement of the Insurancesettlement of the Insurance
claimclaim
Under the Islamic Ijarah, rentUnder the Islamic Ijarah, rent
is consideration for usage ofis consideration for usage of
the leased asset, and if thethe leased asset, and if the
asset has been stolen,asset has been stolen,
destroyed or temporarily outdestroyed or temporarily out
of order and not in use ofof order and not in use of
Customer, the concept ofCustomer, the concept of
rental becomes void. In suchrental becomes void. In such
situations rental is not chargedsituations rental is not charged
from the lessee.from the lessee.

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Penalty for late paymentPenalty for late payment
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
In most contemporary financialIn most contemporary financial
leases, an extra monetaryleases, an extra monetary
amount is charged if rent is notamount is charged if rent is not
paid on time. This extra amountpaid on time. This extra amount
is the considered Riba and isis the considered Riba and is
Haram.Haram.
This amount is taken by theThis amount is taken by the
leasing institution into theirleasing institution into their
income.income.
Under Ijarah, the Lessee may beUnder Ijarah, the Lessee may be
asked to undertake that if heasked to undertake that if he
fails to pay rent on its due date,fails to pay rent on its due date,
he will pay a certain amount to ahe will pay a certain amount to a
charity Fund, which will becharity Fund, which will be
administered through theadministered through the
Islamic Bank.Islamic Bank.
For this purpose the bankFor this purpose the bank
maintains a charity fund wheremaintains a charity fund where
such amounts may be creditedsuch amounts may be credited
and disbursed for charitableand disbursed for charitable
purposes.purposes.

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Insurance premiumInsurance premium
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
Insurance is independent ofInsurance is independent of
the lease contract. Thethe lease contract. The
insurance expense of the assetinsurance expense of the asset
is directly borne by the lesseeis directly borne by the lessee
TakafulTakaful // InsuranceInsurance should beshould be
at the expense of the Lessorat the expense of the Lessor
and not at the expense of theand not at the expense of the
lessee. The Lessor maylessee. The Lessor may
increase the lease rent toincrease the lease rent to
recover any costs incurred byrecover any costs incurred by
him in connection with thehim in connection with the
asset. However, as a matter ofasset. However, as a matter of
principal, the cost should beprincipal, the cost should be
paid for by the Lessor.paid for by the Lessor.

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Registration ChargesRegistration Charges
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
Lessee is responsible for theLessee is responsible for the
Registration of LeasedRegistration of Leased
Vehicle.Vehicle.
The Leased Asset(vehicle) isThe Leased Asset(vehicle) is
registered in the name of theregistered in the name of the
Bank and registration chargesBank and registration charges
are paid by the Bank (Lessor).are paid by the Bank (Lessor).
The Lessor may increase theThe Lessor may increase the
lease rent to recover any costslease rent to recover any costs
incurred by him in connectionincurred by him in connection
with the assetwith the asset

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Purchase of assetPurchase of asset
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
Under conventional leasingUnder conventional leasing
contracts, the vehicle iscontracts, the vehicle is
automatically transferred in theautomatically transferred in the
name of the customer uponname of the customer upon
completion of the lease period,completion of the lease period,
whether or not he wants towhether or not he wants to
purchase it.purchase it.
There is not such clause in theThere is not such clause in the
Ijarah Agreement that LeasedIjarah Agreement that Leased
Asset will automatically transferAsset will automatically transfer
to Lessee.to Lessee.
Separate sale agreement isSeparate sale agreement is
required to execute salerequired to execute sale
transaction at the end of leasetransaction at the end of lease
term.term.

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Commencement of RentalsCommencement of Rentals
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
In case of Booking of LeasedIn case of Booking of Leased
Asset, recovery of LeaseAsset, recovery of Lease
installment commence afterinstallment commence after
the payment of cost of Assetthe payment of cost of Asset
to manufacturer/dealer.to manufacturer/dealer.
In case of Car Ijarah, theIn case of Car Ijarah, the
recovery of rentals isrecovery of rentals is
associated with delivery ofassociated with delivery of
Leased Asset.Leased Asset.
Rental recovery should not beRental recovery should not be
commenced before thecommenced before the
delivery of Asset.delivery of Asset.

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Signing of Lease ContractSigning of Lease Contract
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
Lease Agreement can be signedLease Agreement can be signed
by the Lessee and Lessee anyby the Lessee and Lessee any
time even if the Leased Asset istime even if the Leased Asset is
not owned by the Customer.not owned by the Customer.
In case of Ijarah, the IjarahIn case of Ijarah, the Ijarah
Agreement can not be signed byAgreement can not be signed by
the Lessor and Lessee unless:the Lessor and Lessee unless:
Asset has come in toAsset has come in to
existenceexistence
Assets is in the ownership ofAssets is in the ownership of
the Lessorthe Lessor
Lessor has taken possessionLessor has taken possession
of the Assetof the Asset

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Termination before deliveryTermination before delivery
Conventional LeasingConventional Leasing Car IjarahCar Ijarah
The customer will suffer loss ofThe customer will suffer loss of
interest paid during the bookinginterest paid during the booking
period because installmentperiod because installment
commence immediately aftercommence immediately after
payment of cost of asset to thepayment of cost of asset to the
Manufacturer/Dealer.Manufacturer/Dealer.
The loss of customer is onlyThe loss of customer is only
limited to actual loss, if any,limited to actual loss, if any,
suffered by the Lessor on sale ofsuffered by the Lessor on sale of
asset in the open market.asset in the open market.
Since the customer has not paidSince the customer has not paid
any rental during the bookingany rental during the booking
period, no other cash loss isperiod, no other cash loss is
expected under Ijarah.expected under Ijarah.

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DOCUMENTATIONDOCUMENTATION
OF IJARAHOF IJARAH

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IJARAH AGREEMENTIJARAH AGREEMENT
Ijarah Agreement is the basic document whichIjarah Agreement is the basic document which
contains all terms and conditions pertinent ofcontains all terms and conditions pertinent of
Ijarah of particular Asset(s).Ijarah of particular Asset(s).
Ijarah Agreement shall invariably be signed afterIjarah Agreement shall invariably be signed after
the Lessor has taken the possession the Asset andthe Lessor has taken the possession the Asset and
not earlier.not earlier.

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ADDENDUMS TO IJARAH AGREEMENTADDENDUMS TO IJARAH AGREEMENT
Description of the Ijarah AssetDescription of the Ijarah Asset
Schedule of of Ijarah RentalsSchedule of of Ijarah Rentals
Receipt of AssetReceipt of Asset
Demand Promissory NoteDemand Promissory Note

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DESCRIPTION OF IJARAH ASSETDESCRIPTION OF IJARAH ASSET
This document contains the detailedThis document contains the detailed
description about the Leased Assetdescription about the Leased Asset
agreed between the parties e.gagreed between the parties e.g
Name, Make ,Model,Engine No.,Name, Make ,Model,Engine No.,
Chassis No., Registration No. etc etc.Chassis No., Registration No. etc etc.
This documents shall be signed signed afterThis documents shall be signed signed after
Delivery of asset to the Lessee and not earlier.Delivery of asset to the Lessee and not earlier.

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SCHEDULE OF IJARAHSCHEDULE OF IJARAH
RENTALSRENTALS
This schedule contains a table whichThis schedule contains a table which
shows:shows:
Amount of rental (Monthly/Quarterly/HalfAmount of rental (Monthly/Quarterly/Half
Yearly)Yearly)
Date of Payment of each rentalDate of Payment of each rental
This schedule will also contain theThis schedule will also contain the
date on which first rental is due.date on which first rental is due.
This documents shall be signed signed afterThis documents shall be signed signed after

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RECEIPT OF ASSETSRECEIPT OF ASSETS
This document confirms thatThis document confirms that
customer has taken the possession ofcustomer has taken the possession of
Leased Asset as described in theLeased Asset as described in the
earlier document “Description ofearlier document “Description of
Ijarah Asset”.Ijarah Asset”.
This document is only signed by theThis document is only signed by the
Lessee on receipt of Asset, as anLessee on receipt of Asset, as an
acknowledgement of receipt ofacknowledgement of receipt of
described asset under Ijarah Contact.described asset under Ijarah Contact.

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PROMISSORY NOTEPROMISSORY NOTE
 After signing of Ijarah Agreement,After signing of Ijarah Agreement,
the amount of rentals become Debtthe amount of rentals become Debt
(Dyan) to the Lessee.(Dyan) to the Lessee.
 Promissory Note is Lessee’sPromissory Note is Lessee’s
acknowledgement to Debt amountacknowledgement to Debt amount
and its promise to pay.and its promise to pay.

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UNDERTAKING TO PURCHASE LEASED ASSETUNDERTAKING TO PURCHASE LEASED ASSET
This documents containsThis documents contains
undertaking from the Lessee thatundertaking from the Lessee that
he/it will purchase the Leased assethe/it will purchase the Leased asset
on the purchase Price correspondingon the purchase Price corresponding
to the Purchase Date.to the Purchase Date.
This document contains a scheduleThis document contains a schedule
which shows Purchase Price(s)which shows Purchase Price(s)
during the Ijarah term on which theduring the Ijarah term on which the
Lessee can purchase the asset byLessee can purchase the asset by

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OTHER DOCUMENTSOTHER DOCUMENTS
Undertaking for Personal useUndertaking for Personal use
of Ijarah Assetof Ijarah Asset
Trust ReceiptTrust Receipt
Authorization to TakeAuthorization to Take
possession of Leased Assetpossession of Leased Asset
Sale DeedSale Deed