ISLAMIC FINANCE

NAME
Faiza illyas
ROLL NO
BC12-486

Ijarah
Definition of Ijarah:
Literally means:
To give something on rent.
It is defined as:
to
transfer the usage of a nonconsumable asset by the owner (the
lessor) to another person (the lessee) for
an agreed period, at an agreed price
(rent).

Ijarah as a mode of financing

jarah is an Islamic alternative of Leasing.
Leasing backed by an acceptable contract is an
acceptable transaction under Shariah.
The question of whether or not the transaction of
leasing is Shariah compliant depends on the terms
and conditions of the contract.
Several characteristics of conventional agreements
may not conform to Shariah thus making the
transaction un-Islamic and thereby invoking a
prohibition.

Rules of Ijarah

Rules of Ijarah
Transferring of usufruct not ownership
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.

Rules of Ijarah
No hidden registration / tax related
expenses and fees
No hidden takaful (Insurance) payment
Subject matter of Lease should be
Valuable, Identified and Quantified.
The period of Lease must be
determined in clear terms.

Process of Ijarah

Ijarah
Transfer of Title

VENDOR

ISLAMIC BANK

Payment of Purchase Price

Agreement-1

CUSTOMER

The customer approaches the Bank with

the request for financing and enters into
a promise to lease agreement.
The Bank purchases the item required
for leasing and receives title of
ownership from the vendor
The Bank makes payment to the vendor

Ijarah as a mode of financing

Transfer of Title

VENDOR

Transfer of Title

ISLAMIC BANK

Payment of Purchase Price

Agreement-2

CUSTOMER

Payment of Rental Fees

The Bank leases the asset to the customer after

execution of lease agreement.
The customer makes periodic rental payments
as per the contract
At the end of the tenure customer can purchase
the asset from the bank with the help of
separate Sale agreement.

CASE STUDY CAR FINANCING

Summary
In first step an agreement is signed by
two parties one is bank and second is
customer.
The bank is agreed upon to lease a car
for his customer named as Malik
Mustazar Ali.
Mr Malik required a Fontan car.
Cost of vehicle
1450000
It includes
all facility detail
of asset
Down payment
217500
as follow;
MBL financing
1232500
Tenure

5 years

Summary
After the necessary documentation, the
bank will provide a described payment
schedule.
On which all instalments will be paid by
the customer

And which all the instalments fulfilled by

the customer, ownership will be transfer
to the customer.