Diminishing Musharakah is a financing structure where a financier and client jointly own a property or business, with the client purchasing incremental shares from the financier over time until becoming sole owner. Key elements include creating joint ownership, the financier leasing their share to the client, and the client promising to periodically purchase portions of the financier's share.
Istisna is a sale contract where a manufacturer produces a specified good for a purchaser using their own materials. The price and specifications must be agreed upon upfront. Istisna can be used for project financing, such as building a house or factory.
Ijara is a leasing contract where the owner transfers usage of an
This document discusses the concept of Ijarah in Islamic finance. Ijarah refers to the leasing or renting of an asset where ownership remains with the lessor. The document outlines different types of Ijarah contracts and how they work, including operating leases where ownership remains with the bank, and financial leases where ownership may transfer to the lessee. It also discusses various terms and conditions that govern Ijarah contracts such as rental rates, security deposits, lease periods, and termination.
This document discusses the rules and structures of Ijarah (leasing) contracts under Shari'ah (Islamic law). Some key points:
- An Ijarah contract involves leasing an asset owned by the lessor to a lessee. A master agreement can cover multiple transactions or individual contracts can be used.
- The lessee can be required to pay a security deposit to guarantee fulfilling the lease contract. The deposit can be held in trust or invested via Mudarabah.
- For a valid Ijarah, the lessor must acquire the asset prior to the contract. The asset can be acquired from the lessee or third party.
- Various lease structures are allowed,
The document discusses the key differences and rules regarding lease (ijarah) contracts in Islamic finance. It outlines 12 basic rules for ijarah, including that ownership remains with the lessor, the rental amount and period must be clearly specified upfront, expenses related to ownership fall to the lessor, and the lessee is responsible for any damage caused by misuse or negligence. Ijarah can be used as a financing mode if certain additional conditions are met, such as rent only being charged after asset delivery and the lessor bearing purchase expenses. The document contrasts ijarah with conventional interest-based loans.
The document defines and discusses the Islamic financing concept of al-ijarah. Some key points:
- Al-ijarah refers to a lease or rental contract in which one party allows another to use an asset for a fee. It is distinguished from a normal sale by having a specified time period.
- The pillars of al-ijarah include the owner (mu'ajjir), user (musta'jir), asset (ma'jur), benefit/usufruct (manfaah), fee (ujrah), and offer/acceptance (sighah).
- A major modern application is al-ijarah thumma al-bay', where a lease
The document discusses the concept of ijarah in Islamic finance, which refers to a leasing contract where an asset is leased to a client in exchange for rental payments over a period of time. It provides details on the different types of ijarah contracts, including operating ijarah and ijarah muntahia bit tamleek, and explains the accounting treatment for ijarah transactions according to the Financial Accounting Standard No. 8.
Ijarah is an Islamic financing method where a lessor leases an asset to a lessee for an agreed upon rental payment. There are three key points:
1) Ijarah allows the use of an asset but ownership remains with the lessor, who bears risks related to ownership. The lessee bears risks related to use of the asset.
2) Rental payments and sale of the asset must be structured separately to avoid making the lease contingent on sale.
3) Rules governing ijarah require the asset to be identified and the lease period determined. Rent can be set ahead of time but not increased unilaterally. The lessee bears costs of use while the lessor
Ijara, or leasing, allows the transfer of usufruct of an asset to another party for an agreed rental payment over an agreed period of time. The lessor retains ownership of the asset's corpus. Basic rules require the asset be identifiable and usable without consuming, the rental be determined upfront for the full period, and the lessee only use the asset for specified purposes. Responsibilities include the lessor bearing ownership costs and liability, while the lessee is liable for normal wear and tear. Issues discussed include expenses, rental recovery, price increases, and ensuring sale and leaseback transactions genuinely transfer ownership rather than just providing liquidity.
The document outlines the basic rules and concepts of Ijara, an Islamic leasing contract. It discusses that Ijara involves transferring the use of an asset, not ownership, for a predetermined rental price and period. The lessor bears risks and costs of ownership while the lessee is responsible for any damage caused by misuse. The document also explains how Ijara can be structured as a financing technique in accordance with Shariah principles by having distinct sale and lease contracts and avoiding interest.
This document discusses the concept of Ijarah in Islamic finance. Ijarah refers to the leasing or renting of an asset where ownership remains with the lessor. The document outlines different types of Ijarah contracts and how they work, including operating leases where ownership remains with the bank, and financial leases where ownership may transfer to the lessee. It also discusses various terms and conditions that govern Ijarah contracts such as rental rates, security deposits, lease periods, and termination.
This document discusses the rules and structures of Ijarah (leasing) contracts under Shari'ah (Islamic law). Some key points:
- An Ijarah contract involves leasing an asset owned by the lessor to a lessee. A master agreement can cover multiple transactions or individual contracts can be used.
- The lessee can be required to pay a security deposit to guarantee fulfilling the lease contract. The deposit can be held in trust or invested via Mudarabah.
- For a valid Ijarah, the lessor must acquire the asset prior to the contract. The asset can be acquired from the lessee or third party.
- Various lease structures are allowed,
The document discusses the key differences and rules regarding lease (ijarah) contracts in Islamic finance. It outlines 12 basic rules for ijarah, including that ownership remains with the lessor, the rental amount and period must be clearly specified upfront, expenses related to ownership fall to the lessor, and the lessee is responsible for any damage caused by misuse or negligence. Ijarah can be used as a financing mode if certain additional conditions are met, such as rent only being charged after asset delivery and the lessor bearing purchase expenses. The document contrasts ijarah with conventional interest-based loans.
The document defines and discusses the Islamic financing concept of al-ijarah. Some key points:
- Al-ijarah refers to a lease or rental contract in which one party allows another to use an asset for a fee. It is distinguished from a normal sale by having a specified time period.
- The pillars of al-ijarah include the owner (mu'ajjir), user (musta'jir), asset (ma'jur), benefit/usufruct (manfaah), fee (ujrah), and offer/acceptance (sighah).
- A major modern application is al-ijarah thumma al-bay', where a lease
The document discusses the concept of ijarah in Islamic finance, which refers to a leasing contract where an asset is leased to a client in exchange for rental payments over a period of time. It provides details on the different types of ijarah contracts, including operating ijarah and ijarah muntahia bit tamleek, and explains the accounting treatment for ijarah transactions according to the Financial Accounting Standard No. 8.
Ijarah is an Islamic financing method where a lessor leases an asset to a lessee for an agreed upon rental payment. There are three key points:
1) Ijarah allows the use of an asset but ownership remains with the lessor, who bears risks related to ownership. The lessee bears risks related to use of the asset.
2) Rental payments and sale of the asset must be structured separately to avoid making the lease contingent on sale.
3) Rules governing ijarah require the asset to be identified and the lease period determined. Rent can be set ahead of time but not increased unilaterally. The lessee bears costs of use while the lessor
Ijara, or leasing, allows the transfer of usufruct of an asset to another party for an agreed rental payment over an agreed period of time. The lessor retains ownership of the asset's corpus. Basic rules require the asset be identifiable and usable without consuming, the rental be determined upfront for the full period, and the lessee only use the asset for specified purposes. Responsibilities include the lessor bearing ownership costs and liability, while the lessee is liable for normal wear and tear. Issues discussed include expenses, rental recovery, price increases, and ensuring sale and leaseback transactions genuinely transfer ownership rather than just providing liquidity.
The document outlines the basic rules and concepts of Ijara, an Islamic leasing contract. It discusses that Ijara involves transferring the use of an asset, not ownership, for a predetermined rental price and period. The lessor bears risks and costs of ownership while the lessee is responsible for any damage caused by misuse. The document also explains how Ijara can be structured as a financing technique in accordance with Shariah principles by having distinct sale and lease contracts and avoiding interest.
This document outlines the basic rules and concepts of Ijara, an Islamic financing structure that involves the leasing of an asset. Some key points include:
- Ijara involves transferring the usufruct (use) of an asset to another for a rental payment, while ownership remains with the lessor.
- The asset must be valuable, identified, quantified, and not consumable.
- The lessor bears all ownership liabilities and risks while the lessee is responsible for any damage caused by misuse or negligence.
- Rent must be clearly determined upfront for the full lease period. The lessor cannot later increase the rent unilaterally.
Ijara or leasing is an Islamic financing contract where the financier buys an asset and leases it to a business owner for a rental fee. There are several types of ijara contracts: basic ijara for leasing services or assets; ijara muntahia bittamleek which allows the lessee to purchase the asset; and al-ijarah wa al-iqtina which is a lease-to-own agreement commonly used for home financing. The ijara contract must meet conditions such as clearly specifying the purpose and responsibilities of both parties, and cannot involve uncertainty around prices, interest, or penalties.
The document discusses the concept and process of Ijarah, an Islamic financing structure where a bank purchases an asset and leases it to a customer. It defines Ijarah, outlines the basic conditions including requirements for the contract, asset, and rental. The process involves the customer requesting financing, the bank acquiring the asset from a vendor and leasing it to the customer, who makes periodic rental payments until ownership transfers at the end of the lease term. Key legal documentation for Ijarah includes letters of undertaking, agency agreements, lease agreements, and sale agreements.
Ijarah is a lease contract in Islamic finance where the bank leases equipment or property to a client in exchange for rental payments. It involves five pillars: the lessor who provides the asset, the lessee who uses the asset, the asset itself, the benefits gained from using the asset, and the rental price paid. There are differences of opinion on ijarah among scholars, but hadith and consensus support the permissibility of ijarah contracts. The major types of ijarah are ijarah wa iqtina (lease with purchase), ijarah muntahia bittamleek (lease ending in ownership), and normal ijarah.
Ijarah is an Islamic lease agreement where one party (the lessor) leases an asset to another party (the lessee) in exchange for a rental payment. There are basic principles that govern ijarah, including pillars like offer and acceptance between the two parties, a specified rental payment, and a clearly defined leased asset. Ijarah agreements must also comply with Sharia rules regarding timely payment of wages, responsibilities of parties, and termination conditions. Key issues in structuring ijarah include ensuring rental payments are not interest-based and addressing insurance, maintenance, ownership registration, and compliance oversight by a Sharia board.
This clause makes the Ijarah contract invalid because selling of the asset cannot be contingent upon fulfilling the terms of the Ijarah contract. Under Islamic finance principles, the lease and sale contracts must be separate, with the sale not being an automatic outcome of fulfilling the lease terms.
Ijarah is an Islamic alternative to conventional leasing. It involves the leasing of an asset by the owner (lessor) to the lessee in exchange for rental payments. Some key points:
1. Ownership of the leased asset remains with the lessor, while the lessee has usage rights in exchange for rent.
2. The rental amount and lease period must be clearly defined and agreed upon in the lease contract.
3. The lessor bears expenses related to asset ownership while the lessee is responsible for usage expenses such as maintenance.
4. Damage to the asset not due to lessee negligence is covered by the lessor. The lessee is liable to compensate for
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.
1. Ijarah refers to leasing or renting assets according to Islamic principles. There are two main types: operating ijarah, which does not transfer ownership; and financial ijarah, which can end with transferring ownership to the lessee.
2. The document discusses the key elements and regulations of ijarah contracts, including identifying the leased asset, determining rental payments upfront, and keeping ownership with the lessor.
3. Waleed is deciding whether to buy or lease a car, and his friends provide different options from Islamic banks and a car rental company. After comparing costs and interest rates, they conclude KFH's ijarah option is best for Waleed with
The document provides an overview of Islamic banking in Pakistan, including the history, current strategies and progress, and key financing modes such as Ijara. It discusses past efforts to establish Islamic banking since the 1970s and reasons for their failure. The current strategy involves a gradual multi-pronged approach to transform the economy and establish full-fledged Islamic banks and subsidiaries. Key points covered include the role of the State Bank of Pakistan, industry growth targets, and clarification of common misconceptions about Islamic banking practices.
This document outlines key differences between conventional car leasing/financing contracts and Islamic Ijarah contracts. Some key differences discussed include:
- Conventional contracts often contain elements like interest payments or automatic transfer of ownership that are not allowed under Islamic law.
- Under Ijarah, rental payments stop if the asset is stolen or unusable, whereas conventional contracts may continue charges.
- Late fees charged under conventional contracts are considered interest, while Ijarah contracts direct late fees to charity.
- Insurance and registration costs are borne by the lessor under Ijarah but by the lessee under conventional contracts.
- Ijarah contracts cannot be signed until the asset exists and is owned
Ijarah is a lease contract that allows the transfer of ownership of an asset to another party for an agreed upon rental payment over a specified period of time. There are two main types of Ijarah: operating Ijarah, which does not include transfer of asset ownership at the end of the lease, and financial Ijarah (Ijarah Muntahia Bittamleek), where ownership does transfer to the lessee. The basic rules of Ijarah require that the rental amount and lease period be clearly defined upfront. Diminishing Musharakah is a partnership concept where one partner's ownership stake gradually decreases over time as the other partner purchases more shares.
The document discusses different types of car financing options in Pakistan, including personal loans and Islamic financing methods like Ijara. Ijara financing involves renting a car from a lessor and making rental payments instead of interest payments. It does not require providing security for the loan. Personal loans require security and have fixed interest rates. Ijara is more flexible and popular among most Pakistanis due to religious reasons. The document concludes that Ijara is more income-friendly and suitable for the Pakistani market and economy compared to conventional personal loans.
This document provides an overview of Ijarah (leasing) in agriculture. It discusses:
1) Ijarah is an Islamic leasing contract where the lessor retains ownership of the asset and transfers its usufruct to the lessee. Ijarah Muntahia Bittamleek is a type of Ijarah that ends with transfer of ownership.
2) The essentials of Ijarah include the lessor retaining title and risk of the asset, responsibilities of each party, conditions for rental payments and termination.
3) AAOIFI Shariah standards provide guidelines for issues like promise to lease an asset, acquisition of the asset, concluding the contract, rules for rent
The document is a presentation by the ACE Group on Islamic financing concepts. It contains definitions and rules of Ijarah (Islamic leasing) and compares it to conventional leasing. Some key differences discussed are: in Ijarah, rental payments begin only after asset delivery and the lessor bears all ownership costs; late fees in Ijarah go to charity not the lessor's income. Ijarah also allows variable rent over time if specified upfront, and the lessor retains asset ownership after the lease ends. Ijara wa Iqtina (lease to own) is also introduced as a financing structure where rental payments go towards eventual asset acquisition.
A Musharakah contract is an agreement where two or more parties contribute capital to establish a new project or share in an existing project. There are different types of partnerships (shirkah) including shirkat-ul-milk for joint property ownership and shirkat-ul-aqd for commercial partnerships. Shirkat-ul-aqd can be based on capital contributions (shirkat-ul-amwal), work/skills (shirkat-ul-aamal), or reputation (shirkat-ul-wujooh). The rules of Musharakah require capital contributions to be clearly defined, profits and losses to be shared based on capital ratios, and termination procedures in cases such as
The document discusses Bank Al-Habib's car financing product using the Islamic financing structure of diminishing musharaka, including how the bank and customer jointly purchase the car and the customer gradually purchases the bank's shares in the car through rental payments until owning it outright. It provides details on the legal documentation and transaction steps involved in applying for and obtaining this car financing.
Car financing in islamic banks methodology and waysHassan Badar
Diminishing Musharakah is a partnership transaction where partners agree to gradually terminate their partnership by one partner purchasing the other's share. A Diminishing Musharakah auto financing involves: 1) bank and client jointly owning the asset and dividing the bank's share into units; 2) bank renting its share to the client; and 3) bank gradually selling units to the client until they own the asset. Diminishing Musharakah combines Musharakah, Ijarah, and sale transactions.
Ijarah means to give something for rent. It involves transferring usage of a non-consumable asset from the owner (lessor) to a lessee for a period at an agreed
Topic iv. ijarah and other non participatroty modes of islamic finance(2)SaudBilal1
The document discusses various Islamic finance contracts, including Ijarah (leasing), Salam (prepaid forward sale), and Istisna (commission to manufacture).
Ijarah allows the transfer of the use of an asset in exchange for rent payments, while ownership remains with the lessor. It can be used as a financing structure. Salam and Istisna allow the sale of goods before they come into existence, which is normally prohibited, with conditions. Salam requires full prepayment while Istisna does not. Istisna also allows the time of delivery to be unspecified. Both Salam and Istisna can be used as financing modes. The document outlines the rules and structures
Ijarah is a lease contract that allows the transfer of usufruct or benefit of an asset for an agreed upon rental payment over a specified period of time. There are two main types of ijarah: operating ijarah, which is a basic lease; and financial ijarah (ijarah muntahia bittamleek), where ownership is transferred to the lessee at the end of the lease period. The document outlines various rules and conditions for ijarah contracts including asset identification and ownership, rental determination, risk and responsibilities of lessor and lessee, and termination conditions. It also discusses the accounting treatment and application of ijarah. Diminishing musharakah is described as
This document outlines the basic rules and concepts of Ijara, an Islamic financing structure that involves the leasing of an asset. Some key points include:
- Ijara involves transferring the usufruct (use) of an asset to another for a rental payment, while ownership remains with the lessor.
- The asset must be valuable, identified, quantified, and not consumable.
- The lessor bears all ownership liabilities and risks while the lessee is responsible for any damage caused by misuse or negligence.
- Rent must be clearly determined upfront for the full lease period. The lessor cannot later increase the rent unilaterally.
Ijara or leasing is an Islamic financing contract where the financier buys an asset and leases it to a business owner for a rental fee. There are several types of ijara contracts: basic ijara for leasing services or assets; ijara muntahia bittamleek which allows the lessee to purchase the asset; and al-ijarah wa al-iqtina which is a lease-to-own agreement commonly used for home financing. The ijara contract must meet conditions such as clearly specifying the purpose and responsibilities of both parties, and cannot involve uncertainty around prices, interest, or penalties.
The document discusses the concept and process of Ijarah, an Islamic financing structure where a bank purchases an asset and leases it to a customer. It defines Ijarah, outlines the basic conditions including requirements for the contract, asset, and rental. The process involves the customer requesting financing, the bank acquiring the asset from a vendor and leasing it to the customer, who makes periodic rental payments until ownership transfers at the end of the lease term. Key legal documentation for Ijarah includes letters of undertaking, agency agreements, lease agreements, and sale agreements.
Ijarah is a lease contract in Islamic finance where the bank leases equipment or property to a client in exchange for rental payments. It involves five pillars: the lessor who provides the asset, the lessee who uses the asset, the asset itself, the benefits gained from using the asset, and the rental price paid. There are differences of opinion on ijarah among scholars, but hadith and consensus support the permissibility of ijarah contracts. The major types of ijarah are ijarah wa iqtina (lease with purchase), ijarah muntahia bittamleek (lease ending in ownership), and normal ijarah.
Ijarah is an Islamic lease agreement where one party (the lessor) leases an asset to another party (the lessee) in exchange for a rental payment. There are basic principles that govern ijarah, including pillars like offer and acceptance between the two parties, a specified rental payment, and a clearly defined leased asset. Ijarah agreements must also comply with Sharia rules regarding timely payment of wages, responsibilities of parties, and termination conditions. Key issues in structuring ijarah include ensuring rental payments are not interest-based and addressing insurance, maintenance, ownership registration, and compliance oversight by a Sharia board.
This clause makes the Ijarah contract invalid because selling of the asset cannot be contingent upon fulfilling the terms of the Ijarah contract. Under Islamic finance principles, the lease and sale contracts must be separate, with the sale not being an automatic outcome of fulfilling the lease terms.
Ijarah is an Islamic alternative to conventional leasing. It involves the leasing of an asset by the owner (lessor) to the lessee in exchange for rental payments. Some key points:
1. Ownership of the leased asset remains with the lessor, while the lessee has usage rights in exchange for rent.
2. The rental amount and lease period must be clearly defined and agreed upon in the lease contract.
3. The lessor bears expenses related to asset ownership while the lessee is responsible for usage expenses such as maintenance.
4. Damage to the asset not due to lessee negligence is covered by the lessor. The lessee is liable to compensate for
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.
1. Ijarah refers to leasing or renting assets according to Islamic principles. There are two main types: operating ijarah, which does not transfer ownership; and financial ijarah, which can end with transferring ownership to the lessee.
2. The document discusses the key elements and regulations of ijarah contracts, including identifying the leased asset, determining rental payments upfront, and keeping ownership with the lessor.
3. Waleed is deciding whether to buy or lease a car, and his friends provide different options from Islamic banks and a car rental company. After comparing costs and interest rates, they conclude KFH's ijarah option is best for Waleed with
The document provides an overview of Islamic banking in Pakistan, including the history, current strategies and progress, and key financing modes such as Ijara. It discusses past efforts to establish Islamic banking since the 1970s and reasons for their failure. The current strategy involves a gradual multi-pronged approach to transform the economy and establish full-fledged Islamic banks and subsidiaries. Key points covered include the role of the State Bank of Pakistan, industry growth targets, and clarification of common misconceptions about Islamic banking practices.
This document outlines key differences between conventional car leasing/financing contracts and Islamic Ijarah contracts. Some key differences discussed include:
- Conventional contracts often contain elements like interest payments or automatic transfer of ownership that are not allowed under Islamic law.
- Under Ijarah, rental payments stop if the asset is stolen or unusable, whereas conventional contracts may continue charges.
- Late fees charged under conventional contracts are considered interest, while Ijarah contracts direct late fees to charity.
- Insurance and registration costs are borne by the lessor under Ijarah but by the lessee under conventional contracts.
- Ijarah contracts cannot be signed until the asset exists and is owned
Ijarah is a lease contract that allows the transfer of ownership of an asset to another party for an agreed upon rental payment over a specified period of time. There are two main types of Ijarah: operating Ijarah, which does not include transfer of asset ownership at the end of the lease, and financial Ijarah (Ijarah Muntahia Bittamleek), where ownership does transfer to the lessee. The basic rules of Ijarah require that the rental amount and lease period be clearly defined upfront. Diminishing Musharakah is a partnership concept where one partner's ownership stake gradually decreases over time as the other partner purchases more shares.
The document discusses different types of car financing options in Pakistan, including personal loans and Islamic financing methods like Ijara. Ijara financing involves renting a car from a lessor and making rental payments instead of interest payments. It does not require providing security for the loan. Personal loans require security and have fixed interest rates. Ijara is more flexible and popular among most Pakistanis due to religious reasons. The document concludes that Ijara is more income-friendly and suitable for the Pakistani market and economy compared to conventional personal loans.
This document provides an overview of Ijarah (leasing) in agriculture. It discusses:
1) Ijarah is an Islamic leasing contract where the lessor retains ownership of the asset and transfers its usufruct to the lessee. Ijarah Muntahia Bittamleek is a type of Ijarah that ends with transfer of ownership.
2) The essentials of Ijarah include the lessor retaining title and risk of the asset, responsibilities of each party, conditions for rental payments and termination.
3) AAOIFI Shariah standards provide guidelines for issues like promise to lease an asset, acquisition of the asset, concluding the contract, rules for rent
The document is a presentation by the ACE Group on Islamic financing concepts. It contains definitions and rules of Ijarah (Islamic leasing) and compares it to conventional leasing. Some key differences discussed are: in Ijarah, rental payments begin only after asset delivery and the lessor bears all ownership costs; late fees in Ijarah go to charity not the lessor's income. Ijarah also allows variable rent over time if specified upfront, and the lessor retains asset ownership after the lease ends. Ijara wa Iqtina (lease to own) is also introduced as a financing structure where rental payments go towards eventual asset acquisition.
A Musharakah contract is an agreement where two or more parties contribute capital to establish a new project or share in an existing project. There are different types of partnerships (shirkah) including shirkat-ul-milk for joint property ownership and shirkat-ul-aqd for commercial partnerships. Shirkat-ul-aqd can be based on capital contributions (shirkat-ul-amwal), work/skills (shirkat-ul-aamal), or reputation (shirkat-ul-wujooh). The rules of Musharakah require capital contributions to be clearly defined, profits and losses to be shared based on capital ratios, and termination procedures in cases such as
The document discusses Bank Al-Habib's car financing product using the Islamic financing structure of diminishing musharaka, including how the bank and customer jointly purchase the car and the customer gradually purchases the bank's shares in the car through rental payments until owning it outright. It provides details on the legal documentation and transaction steps involved in applying for and obtaining this car financing.
Car financing in islamic banks methodology and waysHassan Badar
Diminishing Musharakah is a partnership transaction where partners agree to gradually terminate their partnership by one partner purchasing the other's share. A Diminishing Musharakah auto financing involves: 1) bank and client jointly owning the asset and dividing the bank's share into units; 2) bank renting its share to the client; and 3) bank gradually selling units to the client until they own the asset. Diminishing Musharakah combines Musharakah, Ijarah, and sale transactions.
Ijarah means to give something for rent. It involves transferring usage of a non-consumable asset from the owner (lessor) to a lessee for a period at an agreed
Topic iv. ijarah and other non participatroty modes of islamic finance(2)SaudBilal1
The document discusses various Islamic finance contracts, including Ijarah (leasing), Salam (prepaid forward sale), and Istisna (commission to manufacture).
Ijarah allows the transfer of the use of an asset in exchange for rent payments, while ownership remains with the lessor. It can be used as a financing structure. Salam and Istisna allow the sale of goods before they come into existence, which is normally prohibited, with conditions. Salam requires full prepayment while Istisna does not. Istisna also allows the time of delivery to be unspecified. Both Salam and Istisna can be used as financing modes. The document outlines the rules and structures
Ijarah is a lease contract that allows the transfer of usufruct or benefit of an asset for an agreed upon rental payment over a specified period of time. There are two main types of ijarah: operating ijarah, which is a basic lease; and financial ijarah (ijarah muntahia bittamleek), where ownership is transferred to the lessee at the end of the lease period. The document outlines various rules and conditions for ijarah contracts including asset identification and ownership, rental determination, risk and responsibilities of lessor and lessee, and termination conditions. It also discusses the accounting treatment and application of ijarah. Diminishing musharakah is described as
This document discusses Diminishing Musharakah, an Islamic financing structure where a bank and customer jointly own an asset. The bank's share is divided into units that the customer purchases over time, increasing their ownership until becoming sole owner. It provides examples of assets financed this way like houses, cars, and machinery. The structure involves creating joint ownership, renting the bank's share to the customer, and the customer purchasing units from the bank over time until owning the asset solely. However, combining all transactions into a single arrangement is not allowed in Islamic law as one cannot make one transaction conditional on another.
The document discusses various types of leases including financial leases, operating leases, sale and leaseback arrangements, and international leasing. It defines key lease terms and parties. It also outlines the regulatory framework for leases under contract law and discusses lease documentation and agreements.
Hire purchase is a financing method for goods where ownership passes to the buyer after they pay installments over a set period. A hire purchase agreement specifies that goods are leased with the option to purchase via installments, with ownership transferring after the final payment. It differs from a normal sale in that the seller retains ownership until full payment and can repossess the goods if installments are missed.
- Leasing is a commercial arrangement where an equipment owner conveys the right to use equipment to a user (lessee) in return for rental payments. There are different types of lease agreements such as financial leases, operating leases, sale and lease back, leveraged leasing, direct leasing, sub-leasing, and wet/dry leasing.
- Financial leases involve the transfer of risks and benefits of asset ownership to the lessee, who has the option to purchase the asset at the end of the lease. Operating leases give limited use rights and the asset remains with the lessor.
- Leasing provides advantages like saving capital, flexibility, tax benefits, and improved liquidity
This document provides an overview of leasing, including definitions, characteristics, types of leases, and the regulatory framework. It defines a lease as an agreement where the lessor conveys the right to use an asset to the lessee in return for rent. There are two main types of leases: financial leases, where the lessee assumes most of the risks and benefits of ownership, and operating leases, which are usually shorter term. The document also outlines the legal rights and obligations of lessors and lessees under contract law and discusses key components of lease agreements.
Hire purchase is a financing method where goods are leased with an option to purchase. Ownership remains with the leasing company until final installment is paid. A hire purchase agreement under the Hire Purchase Act specifies installments be paid over time, possession is given at signing, and ownership passes after final payment. The Supreme Court has ruled hire purchase involves hiring goods with an option to buy arising after installments are paid, with no obligation to buy and ability to return goods. Hire purchase differs from normal sale in that ownership passes later and interest is paid over installments rather than a lump sum.
This document provides an overview of hire purchase financing. Key points include:
- Hire purchase allows a buyer to make a down payment on a good and pay the balance plus interest in installments, with ownership transferring once fully paid.
- The finance company retains ownership until final payment is made and can repossess the good if payments are defaulted on.
- A hire purchase agreement must be in writing and specify details of the good, price, installments, and transfer of ownership upon final payment.
Islami bank bangladesh limited hpsm ibtra presentationxeon_adi
This document provides information on Hire Purchase under Shirkatul Milk (HPSM) contracts. It discusses:
1) HPSM combines elements of shirkat (partnership), ijarah (leasing), and sale contracts, allowing a bank and client to jointly purchase an asset, with the client paying rent before ultimately owning the asset.
2) Key features include both parties sharing ownership and risk proportionally, the rent not being considered the purchase price, and the asset being transferred gradually through separate sale contracts.
3) An example calculation shows how the monthly installment amount is determined, factoring in the principal, interest rate, number of installments, and additional amount to cover rent during
This document provides information on Hire Purchase under Shirkatul Milk (HPSM) contracts. It discusses:
1) HPSM combines elements of shirkat (partnership), ijarah (leasing), and sale contracts, allowing a bank and client to jointly purchase an asset, with the client paying rent before ultimately owning the asset.
2) Key features include both parties sharing ownership and risk proportionally, the rent not being considered the purchase price, and the asset being transferred gradually through separate sale contracts.
3) An example calculation shows how the monthly installment amount is determined, factoring in the principal, interest rate, number of installments, and additional amount to cover rent during
This document discusses the Shariah rules and principles of Istisna, which is a contract for the production and sale of goods to be delivered at a future date. Key points include:
- Istisna allows the sale of goods before they are produced, provided the specifications, price, and delivery date are agreed upon.
- The sale is finalized once production is complete, distinguishing it from Murabahah where separate sale and financing agreements are required.
- Istisna cannot be used as a device to provide interest-based financing in substance.
- Parallel Istisna allows an institution to purchase goods for a customer via two separate, non-linked contracts for
Istisna is a contract for the production or manufacture of goods or assets, where payment is made in advance based on a description but delivery occurs later, once the item is produced. Key conditions for a valid Istisna contract include specifying the item, price, and delivery date. The contract cannot be used simply as a device to provide interest-based financing. Istisna is permitted for transforming raw materials through a manufacturing process, but not for existing capital assets. Payment can be made in installments corresponding to stages of production.
Lease financing allows a person to use an asset without owning it by paying rent over time. It has grown as a major financing option globally. A lease financing contract grants a lessee exclusive use of an asset, like equipment, for an agreed period in exchange for regular rental payments. It allows businesses access to assets without large upfront costs.
This document discusses different types of Sukuk (Islamic bonds), including Istisna'a Sukuk, Salam Sukuk, Ijarah Sukuk, and others. Istisna'a Sukuk are used for project financing, with funds advanced to pay for project costs. Salam Sukuk involve the spot sale of assets for deferred delivery. Ijarah Sukuk are based on the leasing of tangible assets to generate returns for investors. Overall, the document provides an overview of various Sharia-compliant financing structures used in the Islamic capital markets.
The document discusses hire purchase and leasing. It defines hire purchase as hiring an asset for a period of time and then purchasing it, with the purchase price paid over installments. Leasing involves renting an asset from the owner (lessor) for a period of time. There are typically three parties in a hire purchase - the seller, financier, and buyer/hirer. Leasing can be operating or financial, with financial leases transferring most ownership risks to the lessee. The document outlines the rights and obligations of the parties in hire purchase and leasing agreements.
The document discusses the concept of hire purchase, which is a method of selling goods where the buyer makes periodic installment payments and ownership transfers after the final payment. Key details include:
- Under hire purchase, goods are leased by a finance company to a buyer, who pays installments over time with ownership transferring after the final payment.
- The Hire Purchase Act of 1972 defines it as a transaction where goods are leased with an option for the lessee to purchase by paying all installments.
- Key stipulations are installments over a set period, possession at contract start, ownership transfers after final payment, and the buyer can return goods without paying future installments.
The document discusses training and development at Holiday Inn Hotel & Resort. It outlines the hotel's vision, mission, organizational structure, and management style. It also states that the document will look at socializing new employees, training programs to build skills, and development efforts to ensure a supply of highly qualified workers.
The document discusses the teacher's important role in character building of students. It begins by defining character and noting the current scenario of low literacy rates. It emphasizes that character building should be the prime aim of education. Character is influenced most by role models, especially teachers. Teachers need to understand child development principles and apply them appropriately. Development occurs through both nature and nurture influences. The teacher's role is to foster stable, positive behavior in students through their own strong moral character and caring attitude.
This document discusses occupational safety, health, and the environment in Pakistan. It begins with an introduction stating that safety is an unexplored frontier in Pakistan and only receives lip service in most companies. It then discusses the importance of safety as the fourth requirement for living beings.
The document outlines objectives for health, safety, and environmental programs. Health objectives include reducing occupational diseases, maintaining acceptable noise levels, and minimizing respiratory illnesses. Safety objectives and programs aim to qualify employees in first aid and emergency response. Environmental objectives seek to properly treat waste and limit pollution.
Interview segments provide perspectives from managers on their safety standards, waste disposal procedures, and needs for improved medical facilities. Overall, the document evaluates current safety practices and outlines
This document outlines a research proposal to study the role of small and medium enterprises (SMEs) in Pakistan's economy. The objectives are to understand SME definitions, contributions to economic growth and employment, and challenges faced. An overview notes SMEs are important to Pakistan's economy but suffer weaknesses that constrain growth. The broad problem is Pakistan's agriculture-based economy has not boosted development as much as industrialized economies. While large industries contribute to growth, the role of SMEs in all sectors cannot be overlooked.
SA 8000 is a social accountability standard that was developed to allow companies to certify that they operate in accordance with international human rights and labor standards. It aims to ensure ethical sourcing and production through independent third-party audits and continuous improvement efforts. SA 8000 certification can benefit companies by improving their brand image, reducing risks, and increasing customer loyalty and access to international markets.
Marketing research is important for businesses as it plays a role in all phases of the business process. It helps define problems, gather and analyze data, interpret results, and present information to managers. There are three main types of marketing research: explanatory research gathers preliminary information, descriptive research better describes markets and problems, and predictive research predicts future outcomes and tests hypotheses. Marketing research can concentrate on key areas like the market, competition, promotion, products, distribution, and pricing. Desk research uses secondary data while field research collects primary data through methods like observation and surveys. Field research can quickly provide businesses with up-to-date information and competitive advantages.
The document discusses planning tools used by Pakistan Telecommunication Company Limited (PTCL), including budgets, probability theory, and scheduling. It provides an overview of PTCL's history and mission, and analyzes the merits and demertits of the organization. The document concludes by recommending that PTCL improve customer service by responding quickly to complaints, increasing network capacity, and ensuring accurate billing.
The presentation provides an introduction to management concepts for Sir K.J Malik. It is presented by four group members and covers HRM processes both inside and outside the organization. Specifically, it discusses the recruitment process guide, security measures, balancing work and life, and rewards and benefits programs. At the end, the presenters thank the audience and accept any questions.
Pizza Hut came to Pakistan opening locations in Karachi, Lahore, and Multan. It has a hierarchical structure at the head office and restaurant levels. Management functions like planning, organizing, staffing, leading, and controlling are carried out. Pizza Hut conducts various promotional activities worldwide and in Pakistan uses strategies like Pizza Pooch Club and new flavors. It performs well politically and socially but faces threats from new competitors.
This document provides a historical background and overview of Pakistan International Airlines (PIA). It discusses how PIA was formed in 1955 through the merger of Orient Airways and Pakistan Airways to serve as the national carrier of Pakistan. It details PIA's initial routes and fleet expansion over the decades as it grew to become one of the largest airlines in Asia. The document also outlines some of PIA's achievements and challenges over the years in developing its network and adapting to changes in technology and management.
The document discusses the marketing plan of Wah Nobel Acetates Limited, a manufacturer of acetic acid, butyl acetate, and ethyl acetate. It outlines the company's products, market segmentation, distribution channels, pricing policies, and marketing objectives to capture market share and increase sales of its chemicals. The marketing department will focus on customer satisfaction, improving products' image, and ensuring consistency in quality to achieve its goals.
The document discusses Paktel's management information systems. It provides an overview of Paktel's objectives, history, value added services, hardware and software infrastructure, involvement in information system development, strategic information systems using their value chain, database management systems, telecommunication network model, and recommendations.
Paktel is Pakistan's first and leading cellular company. It has the largest network coverage in the country and focuses strongly on customer service. The document discusses Paktel's history and background, strengths such as being the first mobile company and having a qualified workforce, and weaknesses like lack of spending on advertising. It also covers opportunities for growth and threats from increased competition. Paktel offers various value-added services to customers like call centers, international SMS, and call forwarding.
The 379th Project Management Committee meeting was held on May 14, 2005 at 1100 hrs in the Conference Room. All members except the GM of Spinning were present. The agenda included the Spinning Performance Report for May 2005 and maintenance updates. Issues with motor tripping in Section IV were discussed. The document also covered strategies to reduce costs associated with IT outsourcing such as contracting costs, transition costs, vendor management costs, and costs of switching vendors. Key recommendations included being aware of all potential costs, including transition and management costs, and including flexibility and reversibility clauses in contracts.
This document provides an overview of Nestle's history and operations. It discusses how Nestle was founded in 1866 to provide infant nutrition products and condensed milk. It later expanded into coffee, chocolate, bottled water, pet food and other products. Nestle Milkpak Ltd is Nestle's Pakistan subsidiary, which operates factories and collects milk directly from over 130,000 farmers. The company is committed to product quality and social responsibility programs in the communities where it operates.
The document discusses differentiation strategy and providing customers with more value-added (MVA). Differentiation strategy involves delivering goods or services that customers perceive as different in important ways. MVA means giving customers more value by delivering solutions to their problems. Differentiation methods include price differentiation, focus differentiation, product/service differentiation, and customer service differentiation. The document also summarizes Motorola's business strategy, which involves continuous innovation to remain competitive by introducing new technological products and monitoring products.
The document discusses Porter's five forces model as it applies to a Mobilink GSM franchise in Pakistan. It identifies the suppliers, customers, competitors, employees, and pressure groups and analyzes the degree of change and complexity for each factor. It concludes that while some factors like suppliers and employees are stable and simple, others like customers and competitors are dynamic and complex for the franchise. Overall, it believes the company has a bright future due to its employees' hard work and customer service.
The internship report summarizes Babar Ahmad's 6-week internship at the Marriott hotel and resorts in Islamabad. [1] He interned in the finance department, learning about financial procedures, auditing, budgeting, and cost control. [2] During his internship, he helped develop some business processes and procedures and learned disciplines of corporate culture. [3] He gained experience in income auditing, verifying food issuance reports, and using financial systems like Oracle.
This document contains a survey about an individual's work values, job satisfaction, and preferences. It asks the individual to:
1) List their terminal and instrumental values.
2) Grade statements about their job and company on a scale of 1 to 5.
3) Identify where they fall on a matrix measuring sources of job dissatisfaction.
4) Answer yes/no/so-so questions about their pay, work activities, and work nature.
5) Choose between options like job involvement vs. organizational commitment, and uncertainty avoidance vs. risk taking.
The survey gathers information about an employee's values, perceptions of their job and company, and preferences to assess factors
Ferguson Associates is a management consulting firm in Pakistan that follows a flat organizational structure with directors responsible for the four functions of management in their departments. The directors plan effectively, organize with a fluid structure but weaknesses in retaining employees, lead subordinates through team management and motivation, and closely control performance. While generally performing management functions well, the directors could improve in organizing human resources.
Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
An accounting information system (AIS) refers to tools and systems designed for the collection and display of accounting information so accountants and executives can make informed decisions.
How to Identify the Best Crypto to Buy Now in 2024.pdfKezex (KZX)
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In World Expo 2010 Shanghai – the most visited Expo in the World History
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Being a Paper Presented at the Nigerian Maritime Administration and Safety Agency (NIMASA) Budget Office Staff at Sojourner Hotel, GRA, Ikeja Lagos on Saturday 8th June, 2024.
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The eLITE RuPay Platinum Credit Card, a strategic collaboration between Poonawalla Fincorp and IndusInd Bank, represents a significant advancement in India's digital financial landscape. Spearheaded by Abhay Bhutada, MD of Poonawalla Fincorp, the card leverages deep customer insights to offer tailored features such as no joining fees, movie ticket offers, and rewards on UPI transactions. IndusInd Bank's solid banking infrastructure and digital integration expertise ensure seamless service delivery in today's fast-paced digital economy. With a focus on meeting the growing demand for digital financial services, the card aims to cater to tech-savvy consumers and differentiate itself through unique features and superior customer service, ultimately poised to make a substantial impact in India's digital financial services space.
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“Amidst Tempered Optimism” Main economic trends in May 2024 based on the results of the New Monthly Enterprises Survey, #NRES
On 12 June 2024 the Institute for Economic Research and Policy Consulting (IER) held an online event “Economic Trends from a Business Perspective (May 2024)”.
During the event, the results of the 25-th monthly survey of business executives “Ukrainian Business during the war”, which was conducted in May 2024, were presented.
The field stage of the 25-th wave lasted from May 20 to May 31, 2024. In May, 532 companies were surveyed.
The enterprise managers compared the work results in May 2024 with April, assessed the indicators at the time of the survey (May 2024), and gave forecasts for the next two, three, or six months, depending on the question. In certain issues (where indicated), the work results were compared with the pre-war period (before February 24, 2022).
✅ More survey results in the presentation.
✅ Video presentation: https://youtu.be/4ZvsSKd1MzE
Economic trends from a business point of view (May 2024)
Islamic banking terminologies
1. Diminishing Musharakah
According to this concept, a financier and his client participate either in the joint
ownership of a property or an equipment, or in a joint commercial enterprise. The share
of the financier is further divided into a number of units and it is understood that the
client will purchase the units of the share of the financier one by one periodically, thus
increasing his own share until all the units of the financier are purchased by the client so
as to make him the sole owner of the property, or the commercial enterprise, as the case
may be.
Financing on the basis of Diminishing Musharakah
The proposed arrangement is composed of the following transactions:
• Creation of joint ownership in the property (Shirkat-ul-Milk).
• Giving the share of the financier to the client on rent.
• Promise from the client to purchase the units of share of the financier.
• Actual purchase of the units at different stages.
• Adjustment of the rental according to the remaining share of the financier in the
property.
In the above mentioned arrangement, following conditions must be taken care of:
The agreement of joint purchase, leasing and selling different units of the share of the
financier should not be tied-up together in one single contract. However, the joint
purchase and the contract of lease may be joined in one document whereby the financier
agrees to lease his share, after joint purchase, to the client. At the same time the client
may sign one-sided promise to purchase different units of the share of the financier
periodically and the financier may undertake to reduce the rent on remaining units
accordingly.
At the time of the purchase of each unit, sale must be affected by the exchange of offer
and acceptance at that particular date. It will be preferable that the purchase of different
units by the client is affected on the basis of the market value of the asset as prevalent on
the date of purchase of that unit, but it is also permissible that a particular price is agreed
in the promise of purchase signed by the client.
2. Diminishing Musharakah is commonly used for:
• House financing
• Car Financing
• Fixed Assets financing
• Project Financing
Istisna
Istisna’a / Istisna: This is a kind of Sale where a commodity is transacted before it comes
into existance. It means: To order a manufacturer to manufacture a specific commodity
for the purchaser. If the manufacturer under takes to manufacture the goods for him with
material from the manufacturer, the transaction of Istisna’a comes into existence. But it is
necessary for the validity of istisna’that the price is fixed with the consent of the parties
and that necessary specification of the commodity (intended to be manufactured) is fully
settled between them. This kind of Sale also is used as a mode of financing which also
called “Parallel Istisna’a”.Istisna’ is a sale transaction where a commodity is transacted
before it comes into existence. It is an order to a manufacturer to manufacture a specific
commodity for the purchaser. The manufacturer uses his own material to manufacture the
required goods.
In Istisna’, price must be fixed with consent of all parties involved. All other necessary
specifications of the commodity must also be fully settled.
• Istisna’ as a mode of financing
Istisna’ may be used to provide financing for construction of house. If the client owns a
land and seeks financing for the construction of a house, the financier may undertake to
construct the house on the basis of an Istisna’. If the client does not own the land and
wants to purchase that too, the financier can provide him with a constructed house on a
specified piece of land. Istisna’ may also be used for similar projects like installation of
an air conditioner plant in the client’s factory, building a bridge or a highway.
3. The modern BOT (buy, operate and transfer) agreements may be formalized through an
Istisna’ agreement as well. So, if the government wants to build a highway, it may enter
into an Istisna’ contract with the builder. The price of Istisna’ can be the right of the
builder to operate the highway and collect tolls for a specific period.
Ijara
Ijara/ijarahLit: letting on lease. Technically, sale of a definite usufruct in exchange for a
definite reward. Commonly used for wages, it also refers to a contract of land lease at a
fixed rent payable in cash. It is contrary to "Muzarah" when rent is fixed as a certain
percentage of the produce of land. It also refers to a mode of financing adopted by
Islamic banks. It is an arrangement under which an Islamic bank leases equipment, a
building or other facility to a client against an agreed rental. The rent is so fixed that the
bank gets back its original investment plus a profit on it. Ijarah" is a term of Islamic fiqh.
Lexically, it means to give something on rent.
In the Islamic jurisprudence, the term Ijarah is used for two different situations. In the
first place, it means to employ the services of a person on wages given to him as a
consideration for his hired services." The employer is called mustajir while the employee
is called ajir, while the wages paid to the ajir are called their ujrah. The second type of
Ijarah relates to the usufructs of assets and properties, and not to the services of human
beings. Ijarah in this sense means to transfer the usufruct of a particular property to
another person in exchange for a rent claimed from him. In this case, the term Ijarah is
analogous to the English term leasing. Here the lessor is called Mujir, the lessee is called
mustajir and the rent payable to the lessor is called ujrah.
The rules of Ijarah are very much analogous to the rules of sale, because in both cases
something is transferred to another person for a valuable consideration. The only
difference between Ijarah and sale is that in the latter case the corpus of the property is
transferred to the purchaser, while in the case of Ijarah, the corpus of the property
remains in the ownership of the transferor, but only its usufruct i.e. the right to use it, is
transferred to the lessee.
4. Lease as a mode of financing:
Lease is not originally a mode of financing. It is simply a transaction meant to transfer
the usufruct of a property from one person to another for an agreed period against an
agreed consideration. However, certain financial institutions have adopted leasing as a
mode of financing instead of long term lending on the basis of interest.
This transaction of lease may be used for Islamic financing, subject to certain conditions.
It is not sufficient for this purpose to substitute the name of interest by the name of rent
and replace the name of mortgage by the name of leased asset. There must be a
substantial difference between leasing and an interest-bearing loan. That will be possible
only by following all the Islamic rules of leasing.
Basic Rules of Ijarah
Leasing is a contract whereby the owner of something transfers its usufruct to another
person for an agreed period, at an agreed consideration.
The subject of lease must have a valuable use (which is recognized as Mal-e-
Mutaqawwam in Shariah. Therefore, things having no usufruct at all or whose usufruct is
not permissible according to Shariah cannot be leased.
It is necessary for a valid contract of lease that the corpus of the leased property remains
in the ownership of the seller, and only its usufruct is transferred to the lessee. Thus,
anything which cannot be used without consuming cannot be leased out. Therefore, the
lease cannot be effected in respect of money, eatables, fuel and ammunition etc.
As the corpus of the leased property remains in the ownership of the lessor, all the
liabilities emerging from the ownership shall be borne by the lessor, but the liabilities
referable to the use of the property shall be borne by the lessee.
The period of lease must be determined in clear terms.
The lessee cannot use the leased asset for any purpose other than the purpose specified in
the lease agreement. If no such purpose is specified in the agreement, the lessee can use it
for whatever purpose it is used in the normal course.
The lessee is liable to compensate the lessor for any damage to the leased asset caused by
any misuse or negligence on the part of the lessee.
5. The leased asset shall remain in the risk of the lessor throughout the lease period in the
sense that any harm or loss caused by the factors beyond the control of the lessee shall be
borne by the lessor.
A property jointly owned by two or more persons can be leased out, and the rental shall
be distributed between all the joint owners according to the proportion of their respective
shares in the property.
A joint owner of a property can lease his proportionate share to his co-sharer only, and
not to any other person.
It is necessary for a valid lease that the leased asset is fully identified by the parties.
The rental must be determined at the time of contract for the whole period of lease.
In the long term lease agreements, it is mostly not in the benefit of the lessor to fix one
amount of rent for the whole period of lease because the market conditions change from
time to time. For this purpose it is allowed to use benchmark rate to determine the rental
amounts. However, rent for the month will be fixed at the start of the month, any change
in benchmark rate during the month will not cause rent for that month to change. It is also
necessary to define a floor and ceiling.
The lessor cannot increase the rent unilaterally, and any agreement to this effect is void.
The rent or any part thereof may be payable in advance before the delivery of the asset to
the lessee, but the amount so collected by the lessor shall remain with him as on account
payment and shall be adjusted towards the rent after its being due.
The lease period shall commence from the date on which the leased asset has been
delivered to the lessee, no matter whether the lessee has started using it or not.
If the leased asset has totally lost the function for which it was leased, and no repair is
possible, the lease shall terminate on the day on which such loss has been caused.
However, if the loss is caused by the misuse or by the negligence of the lessee, he will be
liable to compensate the lessor for such negligence.
Ijarah is commonly used for:
• For long and medium term fixed asset financing
• Project Financing
• Retail products such as Car Financing, House Financing etc.
6. Murabaha
Murabaha: Lit: sale on profit; Cost plus profit, sale at stated cost price and mark-up, sale
at a specified profit margin. The term is, however, now used to refer to a sale agreement
whereby the seller purchases the goods desired by the buyer and sells them at an agreed
marked-up price, the payment being settled within an agreed time frame, either in
installments or lump sum. The seller undertakes all the management needed for the
purchase and also bears the risk for the goods until they have been delivered to the buyer.
See also bay al-muajjal. This has been adopted as a mode of financing by a number of
Islamic banks. As a financing technique, it involves a request by the client to the bank to
purchase a certain item for him. The bank does that for a definite profit over the cost
which is settled in advance. Some people have questioned the legality of this financing
technique because of its similarity to Riba or interest.
Murabaha is one of the most commonly used modes of financing by Islamic Banks and
financial institutions
Definition:
Murabaha is a particular kind of sale where the seller expressly mentions the cost of the
commodity purchased, and sells it to another person by adding some profit thereon. Thus,
Murabaha is not a loan given on interest; it is a sale of a commodity for cash/deferred
price.
The Bai’ Murabaha involves purchase of a commodity by a bank on behalf of a client and
its resale to the latter on cost-plus-profit basis. Under this arrangement, the bank discloses
its cost and profit margin to the client. In other words rather than advancing money to a
borrower, the bank will buy the goods from a third party and sell those goods to the
customer at an agreed price.
Difference between Murabaha and Sale
A simple sale in Arabic is called Musawamah -a sale without disclosing or referring to
the cost of goods sold.
7. However when the cost price is disclosed to the client, it is called Murabaha. A simple
Murabaha is one where there is cash payment and MurabahaMuajjal is one on deferred
payment basis.
Basic rules for Murabahah:
Following are the rules governing a Murabahah transaction:
The subject of sale must exist at the time of the sale. Thus anything that does not exist at
the time of sale cannot be sold as this makes the contract void. The subject matter should
be in the ownership of the seller at the time of sale. If the seller sells something that he
himself has not acquired, then the sale becomes void.
The subject of sale must be in physical or constructive possession of the seller when it is
sold to another person. Constructive possession means a situation where the owner has
not taken physical delivery of the commodity yet it has come into his control and all
rights and liabilities of the commodity are passed on to him including the risk of its
destruction.
The sale must be instant and absolute. Thus a sale attributed to a future date or a sale
contingent on a future event is void. The subject matter should be a property having
value in the eyes of Shari’a.
The subject of sale must be specifically known and identified to the buyer. For Example,
‘A’ owner of an apartment building says to ‘B’ that he will sell an apartment to ‘B’. Now
the sale is void because the apartment to be sold is not specifically mentioned or pointed
to the buyer. The delivery of the sold commodity to the buyer must be certain and should
not depend on a contingency or chance. The certainty of price is a necessary condition for
the validity of the sale. If the price is uncertain, the sale is void.
The sale must be unconditional. A conditional sale is invalid unless the condition is
recognized as a part of the transaction according to the usage of the trade.
8. Salam
Bai al-salam:This term refers to advance payment for goods which are to be delivered
later. Normally, no sale can be effected unless the goods are in existence at the time of
the bargain. But this type of sale forms an exception to the general rule provided the
goods are defined and the date of delivery is fixed. The objects of this type of sale are
mainly tangible things but exclude gold or silver as these are regarded as monetary
values. Barring these, bai salam covers almost all things which are capable of being
definitely described as to quantity, quality and workmanship. One of the conditions of
this type of contract is advance payment; the parties cannot reserve their option of
rescinding it but the option of revoking it on account of a defect in the subject matter is
allowed. It is also applied to a mode of financing adopted by Islamic banks. It is usually
applied in the agricultural sector where the bank advances money for various inputs to
receive a share in the crop, which the bank sells in the market. This kind of sale (Salam)
also used nowadays as a mode of fianancing that is also called ‘Parallel Salam’.
In Salam, the seller undertakes to supply specific goods to the buyer at a future date in
exchange of an advanced price fully paid at spot. The price is in cash but the supply of
purchased goods is deferred.
This mode of financing can be used by the modern banks and financial institutions
especially to finance the agricultural sector.
Purpose of use:
To meet the need of small farmers who need money to grow their crops and to feed their
family up to the time of harvest. When Allah declared Riba haram, the farmers could not
take usurious loans. Therefore Holy Prophet allowed them to sell their agricultural
products in advance. To meet the need of traders for import and export business. Under
Salam, it is allowed for traders to sell the goods in advance so that after receiving their
cash price, they can easily undertake the aforesaid business. Salam is beneficial to the
seller because the price is received in advance and it is also beneficial to the buyer
because the price in Salam is lower than the price in spot sales.