3. What is Ijara?What is Ijara?
ļ¬Transferring of usufruct of an asset to
another person for an agreed period, at an
agreed consideration
4. Basic Rules of IjaraBasic Rules of Ijara
ļ¬ ļ Anything, which cannot be used without
consuming, cannot be leased out. e.g. Money,
wheat etc.
ļ¬ ļ 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.
ļ¬ ļ It is necessary for valid lease that the leased
asset is fully identified by the parties.
5. Basic Rules of IjaraBasic Rules of Ijara
ļ¬ļ It is necessary for valid lease that the
corpus of the leases property remains in the
ownership of the lessor.
ļ¬ļ The period of lease must be determined
in clear terms.
ļ¬ļļ The lease period shall start from the date
on which the leased asset has been
delivered.
6. Liabilities of PartiesLiabilities of Parties
ļ¬ Lessor Responsibilities:
ļ¬ ļ Since corpus of leased property remains in
the ownership of the lessor therefore all liabilities
of ownership are borne by lessor.
ļ¬ Expenses:
ļ¬ ļ 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.
7. Lessee Responsibilities:Lessee Responsibilities:
ļ¬ļ Being user of the lease asset lessee
can be made liable to any normally
occurring wear and tear.
ļ¬ļ The lessee cannot use the leased asset
for any purpose other then the purpose
specified in the lease agreement.
ļ¬ļ If no such purpose is not specified in
the agreement, the lessee can use it for
whatever purpose it is use in normal course.
8. Lessee as Ameen:Lessee as Ameen:
ļ¬ļ The lessee is liable to compensate the
lessor for every harm caused to the leased
asset by his misuse or negligence.
17. Difference BetweenDifference Between
Murabaha and IjaraMurabaha 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.
ļ¬ In Ijara if the lessee acts as the bankās 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.
18. Difference Between IjaraDifference Between Ijara
and Conventional leaseand 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.
ļ¬ Financing lease contain conditions of hire and
purchase, which in not permissible in Shariah.
ļ¬ Car financing or loan agreement contains
condition of interest.
ļ¬ Ijara contract doesnāt contain any condition that
makes the transaction void in Shariah
19. Difference Between IjaraDifference Between Ijara
and Conventional leaseand Conventional lease
1. 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.
ļ¬ In Ijara all risk pertaining to ownership are
borne by lessor.
2. If the insurance company doesnāt compensate
the entire outstanding amount in case of total
loss, the customer is liable to pay the balance.
ļ¬ In Ijara lessor bears the risk of insurance claim
settlement.
20. Difference Between IjaraDifference Between Ijara
and Conventional leaseand 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.
ļ¬ 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.
21. Difference Between IjaraDifference Between Ijara
and Conventional leaseand 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.
ļ¬ 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.
22. Difference Between IjaraDifference Between Ijara
and Conventional leaseand Conventional lease
1. The Insurance expense of the asset is directly
borne by the lessee.
ļ¬ Takaful / insurance should be at the expense of
the lessor and not at the expense of the lessee.
2. 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.
ļ¬ Under Ijara at the end of Ijara agreement the
customer is not obliged to purchase the vehicle.
24. Expenses Related ToExpenses Related To
OwnershipOwnership
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.
25. Recovery of RentalRecovery 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.
26. Increase in Price of IjarahIncrease in Price of Ijarah
AssetAsset
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.
27. Sale and Lease BackSale and Lease Back
Issue
We have noted that bank enter
into the sale and lease back
transaction for just fulfilling the
liquidity requirement of the
client.
Solution
1. For just liquidity
requirement this
transaction should not be
allowed.
2. Therefore, banks should
consult Shariah Adviosr in
every case.
3. This transaction should be
allowed only for paying
conventional debts.
28. Sale and Lease BackSale and Lease Back
Issue
We have noted that bank enter
into the sale and lease back
transaction for just fulfilling the
liquidity requirement of the
client.
Solution
1. For just liquidity
requirement this
transaction should not be
allowed.
2. Therefore, banks should
consult Shariah Adviosr in
every case.
3. This transaction should be
allowed only for paying
conventional debts.
29. Sale and Lease BackSale 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.