2. First of all we are
thankful to
Almighty ALLAH
who gave us the ability to
complete this task and we
would like to dedicate
this presentation to
Almighty ALLAH
ACE Group
3. Group Members Roll Number
Absar Zia 0024
Waqas Saleem 0005
Sajid Mehmood 0028
Usman Quddus 0025
ACE Group
4. ACE Group
• My topic is What is Ijarah?
• Waqas Saleem topic is What is Lease?
• Usman Quddus topic is Different b/w
Ijarah & Lease.
• Sajid Mehmood topic is working of both
Lease & Ijarah
Work Division
5. Definition of Ijarah:
• Literally means:
To give something on rent.
• It is defined as:
‘to transfer the usage of a non-consumable asset by the
owner (the lessor) to another person (the lessee) for an
agreed period, at an agreed price (rent).’
Ijarah {Islamic Leasing}
ACE Group
6. • Transferring of usufruct not ownership
Basic Rules of Ijarah
ACE Group
7. • Subject of lessee
(Should be valuable, identified and quantified)
• All consumable things cannot be leased out.
(For example money, wheat etc.)
• All liabilities of ownership is borne by lessor
• Period of lease
Basic Rules of Ijarah
ACE Group
8. ACE Group
• Lease for specific purpose
(The lessee cannot use the leased asset for any purpose
other than the purpose specified in the lease
agreement.)
• Ijara payments cannot be assigned to third party.
• In case late payment
Penalty Charity Account
Basic Rules of Ijarah
9. • Lessee as Ameen
(The lessee is liable to compensate the lessor for every harm
to the leased asset caused by any misuse or negligence)
• Determination of Rental
Must be determined
Variable Rentals in Long Term Leases
Lessor has right to change
Both parties
Basic Rules of Ijarah
ACE Group
10. • Rent should be charged after the delivery
of the leased asset
• Repairs & maintenance are the
responsibility of lessor.
• Ijara payments should be stopped if asset
is out of order.
• No hidden registration / tax related
expenses and fees
• No hidden takaful (Insurance) payment
Basic Rules of Ijarah
ACE Group
11. ACE Group
• Processing fee
• Takaful (Insurance)
• In case of Accident
• After maturity HIBA to customer
Basic Rules of Ijarah
13. ACE Group
• When we go for lease?
Unavailability of Financial Resources
• How many parties are Involved?
Lessor
The owner of the assets that are being
used
Lessee
The receiver of the assets under a
lease contract
LEASE
15. ACE Group
A contract by which one party
conveys land, property, services to
another for a specified time,
usually in return for a periodic
financial benefits.
OPERATING LEASE
16. ACE Group
A contract by which one party
conveys commodities like cars
and machinery etc. to another for
a predefine time, usually in
return for a interest.
FINANCIAL LEASE
17. ACE Group
• Direct Lease
• In this type of financial lease the bank
purchases the commodity and then
transfer to the customer on lease for
consideration.
• Sale and Lease Back
• In this type of financial lease the customer
purchases the commodity and then let it
on lease from the bank for consideration.
TYPES OF FINANCIAL
LEASE
18. ACE Group
• Customer capable or not?
• Demand six month balance statement.
• Monthly salary 3 times of installment.
• CIB Report
• Dead Burden Calculation
• Salary in Account along with Pay Slip
• Registration on the name of bank
DIRECT LEASE
19. ACE Group
• Insurance in Advance
• Minimum down payment
• Pay Mark-Up
• Bank Charges
• Registration Fee/Charges
• Freight Charges
• Colour Demand
• Availability of Car
Cont’d.....
20. ACE Group
• Two passport size photograph
• Copy of CNIC
• Bank Statement for the last six months
• Salary certificate (for a salaried
individual)
• Business proof (for a business person)
• NTN Certificate
DOCUMENTS
REQUIRED
21. ACE Group
• Quotation & Documents
• Evaluation
• Same process as for direct lease
SALE AND LEASE
BACK
22. ACE Group
• Quickest Processing
• No Hidden Charges
• Complete Repayment at any point of time
• Balance Transfer Facility for existing as well as
new clients from other banks
• Tenure period ranging from 1 to 5 years
• Financing of all brands new locally assembled
vehicles and used cars.
• Financing Limit ranging b/w Rs 2 Lac to 20 Lac
for Brand new cars
FEATURES OF LEASE
24. ACE Group
Where as in IJARAH
(Islamic lease) rent
should be charged
after the delivery of
asset.
Ijarah
In conventional lease
agreement the lease
commences on the
very next day on
which the price is
paid by the lessor
whether the lesee has
taken the delivery of
the assets or not
Lease
Commencement of Lease
25. ACE Group
• In Ijarah lessor is
the owner of the
assets therefor he
bear all the
expenses incurred
on the purchase of
assets and include
them in the cost of
assets
• In convential lease
the lessor does not
bear all the
expenses incurred
on the purchase of
assets e.g. freight
charges, custom
duty etc.
EXPENSE CONSEQUENTT
TO OWNERSHIP
26. ACE Group
• In Ijarah the lessee
is responsible fro
the losses caused
by hi negligence.
But he will not be
held responsible
for the losses
caused by those
facotr beyond the
lessee’s controll.
• In convential lease
the lessee is
responsible for any
kind of loss to the
assets whether
controllable or
uncontrollable
loss, lessor will not
compensate the
lesee for any loss.
Liabilities of the
parties in case of loss
27. ACE Group
Variable Rentals in
Long Term Lease
The rental must be determined at the time of
contract for the whole period of lease.
It is permissible that different amounts of
rent are fixed for different phases during
the lease period, provided that the amount
of rent for each phase is specifically agreed
upon at the time of effecting a lease.
The determination of rental on the basis of
the aggregate cost incurred in the purchase
of the asset by the lessor, as normally done
in financial leases, is not against the rules
of Shariah.
28. ACE Group
The lessor cannot increase the rent unilaterally,
and any agreement to this effect is void.
Rental will be charged when the Leased asset
is handed over to the lessee.
• Leasing should not be interest-based loan or
replacing interest with rent, rather it should
comply with all of the following conditions of
Islamic leasing:
Cont…
29. ACE Group
• But in case of
Islamic Lease
penalty on late
payment will be
charged but given
to some charity
account and in no
case it will be a
part of lessors
income.
• In Conventional
lease if the lessee
makes late
payment then
penalty will be
charged and added
to lessors account
that is not allowed
in shariah
Penalty For Late
Payment Of Rent
30. ACE Group
• In islamic lease if
the lessee vilate
aby term of the
agreement the
lessor has the right
to terminate the
lease contract. If no
violation on the
part of lessee the
lessor cant
terminate the
contract.
• In conventional
lease if lesse
violate any term of
the agreement then
lessor can
terminate the lease
agreement but if
no violation on the
part of lessee even
then lessor can
terminate the lease
agreement.
Termination of Lease
31. ACE Group
• In Islamic lease as the
asset is the sole
property of the lessor
and after the expiry of
leased period the lessor
is at liberty to renew
the lease agreement or
take the asset back and
lease it out to another
party or sell it to the
lessee
• Lessee cant force the
lessor to sell the asset to
him nor such condition
can be imposed on the
lessor in the lease
agreement.
• At the expiry of
conventional lease the
leased asset is
normally transferred to
the lessee because the
lessor has recovers his
cost along with an
additional profit.
• Asset is transferred
free of cost or nominal
token price
Residual Value Of
leased Assets
33. ACE Group
Means:
RENT
APPLICABLE:
For both Property and Equipment
Ijara-wa-Iqtina is a straightforward
Sharia method meaning rent with an
acquisition or a rent-to-own process.
IJARAH also known as
Lease-to-Own
34. ACE Group
• The investor earns profit on the initial Ijara
amount financed by the customer through
monthly rental payments. Standard
amortization calculations, acceptable
because there are no Sharia issues with
mathematical formulas, are used to
determine specific monthly payments.
• The Ijara transaction is formulated on a
reverse amortization calculation setting it
apart from a conventional mortgage
amortization.
HOW MONTHLY IJARA
RENT PAYMENTS ARE
CALCULATED
35. ACE Group
HOW A PERCENTAGE
WORKS
• Rather than contradicting Sharia, using percentages
to explain the gain made on an Islamic transaction is
acceptable. Measuring the benefit as a percentage in
an Ijara transaction is best explained in the following
example:
•
• Assume you have cash in the amount of RS.10,00,000
• You apply this cash toward the purchase of a Home
• You charge a tenant Rs.5000 monthly to rent the
property
• At year's end, rental payments of Rs.5000 collected
over 12 months total Rs.60,000
• Total rent of Rs.60,000 represents a return of 6% on
your initial investment of RS.10,00,000
36. ACE Group
Cont..
If you are wondering whether the 6% represents
Riba or Rent, the obvious answer is Rent
because the percentage results from a business
agreement.
Let's compare this to a conventional mortgage
interest undertaking:
• Starting out with the equivalent amount of cash
being Rs.100,0000
• You transfer this cash amount to someone
• They use these funds to buy the identical home
• In order to use these funds, they allocate an
equal Rs.5000 monthly payment to you
representing 6% per year
• This formula basically means rent on the funds
37. ACE Group
Cont..
• In the latter instance, the 6%
represents rent on funds or Riba.
Therefore, using a percent to describe
the profit gained from an Islamic
Ijarah transaction is acceptable from a
Sharia viewpoint. In addition, the
Truth in Lending Act/Consumer
Protection Act requires any profit
gained from a residential realty
transaction must be set out as a
percentage so the customer can
evaluate the total cost of the financial
transaction.
38. ACE Group
Sharing either a loss or gain in a financial
transaction is a fundamental principle of
Sharia compliance. As a result, the Ijarah
undertaking is set up to reflect the entire
gain or 100% rightfully belongs to the
customer. Under Shariah, parties share loss
or gain in a transaction based on their
percentage of ownership. Abiding by this
doctrine and at the time of realization of loss
or gain, the Ijarah transaction recognizes the
customer as the only property owner.
SHARING A LOSS OR
GAIN
39. ACE Group
Procedural steps undertaken at the time of the sale
will include:
• transferring title to the property from the Trust to
the customer,
• transferring title from the customer to the
purchaser,
• settling the transaction with the purchaser
pursuant to the terms of the agreement with the
customer,
• Lastly, allowing the customer to conclude with the
trust pursuant to the terms of the arrangement (or
the Ijara documents) between the customer and
the trust.
Cont..
40. ACE Group
Cont..
• Creating a scenario in which the
customer holds 100% title to the
property even briefly, the
aforementioned procedural steps
entitle the customer to benefit from
the dissimilarity between the two
agreements; one being the initial
promise to purchase arrangement
with the trust, and the other being
the sale to the purchaser.
41. ACE Group
• Complete application
• Six month bank statement, sing. & stamp
• Signature verification
• Copy of NIC & 2 reference NIC copies
• Two passport size photographs
• Copy of valid driving license
• Copy of utility bills
• Letter head of business
• Salary slip
• Processing charger Rs. 3000
Car Ijarah Requirement
42. ACE Group
• Bank not take insurance in down payment
• Registration and delivery charges will be paid by
bank at time of delivery but recovered after month
later in first month.
• Customer age should not more than 65 year at
maturity
• Rent will be started after one month delivery of
vehicle
Term and condition
43. ACE Group
If Less than 1 million
• Process charges 4000 PKR
If greater than one million
• Process charges 5000 PKR
Process & valuation charges
for new car (domestic)
44. ACE Group
If less than 1 million
• Process Charges 3000 PKR
• Valuation Charges 1500 PKR
If between than 1 million to 1.5 million
Process Charges 4000 PKR
Valuation Charges 1500 PKR
If greater than 1.5 million
Processing charges remain same
Actual valuation charges charge
Process & valuation
charges for used car
(domestic)
45. ACE Group
If less than 1 million
• process charges 4000 PKR
Out station verification charges
• 500 to 1000 depend upon distance
Process & valuation
charges of (commercial
vehicle)
46. ACE Group
• Suzuki
• Honda
• Toyota
• Nissan
• Hyundai
• Mitsubishi
Car offering by Meezan
bank
47. ACE Group
• Mehran VXS
• Mehran CNG
• Mehran CNG AC
• Alto VXP
• Alto VXP AC
• Alto CNG & AC
• Cultus
• Cultus CNG & AC
• Liana
• AVP CNG 1.5
• Jimny
• Bolan
• Ravi
• Swift
Suzuki Product offering
by Meezan Bank
51. ACE Group
• The second hand car selected should not be more then
twice registered.
• The vehicle should not be older than 5 years.
• The minimum security deposit for a vehicle up to 2
years of age is 20%, while minimum security deposit
for a vehicle over 2 years of age is 30%.
• At the time of maturity of Ijarah agreement, the
vehicle should not be more than 8 years old. This
means that if a car is 5 years old, the Car Ijarah tenure
is not more than 3 years and if its 4 years old, the
tenure may be set for a maximum 4-year term.
• Second hand vehicles selected should not be worth
more than Rs. 1.5 million and less than Rs. 250,000/-.
Meezan Bank will have the vehicle valued by an
independent valuation company accordingly.
TERM AND CONDITION
(FOR OLD CAR)
53. ACE Group
• Scenario 1: Find the Monthly Payment
• Top of Form
• Loan Amount (C):
• Residual Value (F):
• Interest Rate % (R):
• Number of Months (N):
• Monthly Payment (P):
• Bottom of Form
• The primary reason that leasing generally yields lower monthly payments is that
although you are still paying the interest based on the full amount of the loan, the
capital parts of the payments only have to add up to the difference between the
loan and the Residual Value. With r = R/1200, the following formula calculates the
monthly payment and can be reduced to the Loan Calculator formula when F = 0
Lease working
54. ACE Group
• Scenario 2: Find the Interest Rate
• Top of Form
• Loan Amount (C):
• Residual Value (F):
• Monthly Payment (P):
• Number of Months (N):
• Interest Rate % (R):
• Bottom of Form
• For given C, P and N, one can only solve the following equation for r
by numerical means.
• Given the rather smooth behavior of this equation, this calculator
employs the Newton-Raphson method with an educated initial guess:
Cont…
