Ijarah is an operating rental whereby the bank will purchase and rent out equipment required by the client for an in agreement rental fee. The understanding does non include a promise that the leased plus at the terminal of the lease term will be transferred to the leaseholder.
Ijarah is defined in Fiqh as a aa‚¬A“possession of a usufruct or benefits for consideration in the Islamic Fiqh. This term is used to denote two things:
To use the services of a individual on rewards given to him as consideration for hhis hired services.
It relates to the usufruct of assets and belongingss. Here it means aa‚¬A“ To reassign the usufruct of a peculiar belongings to another individual and exchange for a rent claim from himaa‚¬aˆ? .
Ijarah is divided into two sorts:
Operational Lease
Harmonizing to this manner, the Islamic bank maintains a figure of assorted assets to react to the demands of different clients. These assets normally have a high grade of marketability. The bank lets these assets to any party so wishful to use for a term to be agreed upon. After the expiration of the rental period the assets return to the bank, on its portion the bank looks for a new leaseholder.
The distinguishing characteristic of this manner is that the assets remain the belongings of the Islamic bank to set them up for rent every clip the Lease period terminates so as non to stay unutilized for long periods of clip.
Under this mode the bank bears the hazard of recession or decreasing demand for these assets.
The operation rental divides into:
Specific or determined rental: It is the rental of existent belongings or other assets that one can indicate to.
Lease described on liability: It is the Lease of benefit determined by specifications agreed upon to be on liability such as a auto or a ship, non peculiar but exactly described to prohibit difference.
Ijarah Muntohia Bitamleek
It is a rental whereby the bank will purchase and rent out equipment required by the client for an in agreement rental fee. However, it differs from Ijarah in that such an agreement provides an option for the client to get the ownership at the terminal of a specified period.
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The bank may besides come in into a sale and leaseback understanding with the client whereby the bank will buy the plus from the client and leaseback under Ijarah or Ijarah Muntohia Bittamleek arrangement.The accounting deductions for the bank will stay the same as for Ijarah / Ijarah Muntohia Bittamleek minutess.
The option for the leaseholder to get the leased plus may be exercised during the tenor of the entire lease period or at the terminal of the lease term as stipulated in the rental agreement.The purchase option is obligatory for the client ( leaseholder ) .
Ijarah Muntohia Bittamleek concludes with the legal rubric in the leased plus being passedA
to the leaseholder. This includes the undermentioned types:
gift ( transportation of legal rubric for no consideration )
transportation of legal rubric ( sale ) at the terminal of a rental for a nominal consideration or otherA
sum as specified in the rental contract
transportation of legal rubric ( sale ) prior to the terminal of the lease term for a monetary value that isA
equivalent to the staying Ijarah episodes applicable under gradual transportation of legal titleA
( sale ) of the leased plus.
Ijarah and Ijarah Muntohia Bittamleek contracts have three major elements:
offer and credence
two parties: the bank as lease giver ( the proprietor of the leased plus ) and the client as leaseholder ( the party who reaps the services of the leased plus )
the object of the Ijarah contract, which includes the rental sum and the service ( transferred to the leaseholder ) . ”
Beginning: hypertext transfer protocol: //www.albaraka.com/default.asp? action=article & A ; id=302
Differences Between Ijarah and conventional Leasing:
1 ) Ownership:
Conventional Lease: Leasing can supply funding for movable ( industrial, conveyance
and agricultural works and equipment ) or existent estate assets, while at the same clip
leting the creditor establishment to retain ownership of the plus throughout the term of
the contracts.
Ijara: “ Muajjir ” ( lease giver ) is the proprietor of the leased belongings.
2 ) Hazard carrier:
Conventional Lease: The lease giver assumes and manages the hazard of the plus.
Ijara: The hazard and liabilities of ownership prevarication with the “ Muajjir ” . The
leased plus shall stay the hazard of the “ Muajjir ” throughout the lease period. Any loss
or injury caused by factors beyond the control of the “ Mustajir ” leaseholder shall be borne by
the “ Muajjir ” .
3 ) Get downing clip for rental duty
Conventional Lease: The rental falls due from the day of the month when the leaseholder accepted the
goods.
Ijara: The rental falls due from the day of the month of passing over the plus to
“ Mustajir ” .
4 ) Utility of belongings
Conventional Lease: The leased equipment must non be “ limited usage ” belongings.
Ijara: It is a status that the plus to be leased must be a non-fungible
one which can be utilized more than one time.
5 ) Punishment
Conventional Lease: Punishment can be charged to the leaseholder for delayed payment.
Ijara: Punishment can be charged to the leaseholder for delayed payment though
the sum recovered is merely to be used for charitable intents by the lease giver.
6 ) Repossession of an plus
Conventional Lease: The rental must non incorporate an option to buy the plus at a
deal monetary value.
Ijara: 1. There ca n’t be two contracts in one contract. Since the
intent of “ purchase deal option ” is wholly different than the intent of reassigning
the usufructs of an plus. Inserting the clause of “ purchase deal option ” serves the
intent of another contract. On the one manus it allows the leaseholder to avail the usufructs of
the leased plus and on the other manus it besides gives the right to the leaseholder to buy the
same leased plus, which is non allowed in Shariah.
7 ) Evaluation upon completion of chartered period:
Conventional Lease: The plus must hold secondary value after the termination of the
primary lease term.
Ijara: A leased plus must hold a value upon completion of the agreed
leased period.
8 ) Premature expiration of rental:
Conventional Lease: Lease can be terminated in the event that the leaseholder fails to run into
his duties, notably the duty to pay rent. The lease giver must so incite legal
proceedings affecting the delivery of a claim, where equipment is concerned. Lessee
ca n’t end rent if contract does non incorporate cancellation clause.
Ijara: Premature expiration of the rental is allowed provided that the
leaseholder has violated or contravened the footings of the rental.
9 ) Consequence of premature expiration:
Conventional Lease: On expiration of rental contract, all duties that are still
executory on both sides are discharged.
Ijara: From the clip of expiration, the leaseholder is non obliged for rental
payment.
10 ) Sale and rent back as one dealing:
Conventional Lease: This dealing involves the sale of the belongings by one company
to another which in bend leases the same belongings back to the original marketer.
Ijara: Sale and rent back are allowed, but merely as two separate
minutess.
11 ) Determinant of rent:
Conventional Lease: Lessors consider market related forces while scheduling rental
payments. The market rate of involvement provides a footing for lease finding.
Ijara: Rent is determined by market given forces. In pattern, the
market rate of involvement is used to find the rental rate, although this is non explicitly
stated.
12 ) Equivalent to a sale:
Conventional Lease: A maker or trader does n’t acknowledge any merchandising net income on
come ining into an operating rental because it is non the equivalent of a sale.
Ijara: Renting differs from sale in the manner that it does non reassign the
principal or ownership of the belongings, which remains with the transferor.
The of import fact is that under Shariah the leasing and sale/purchase
minutess are two separate things and should non be mixed up in one contract, as both
are independent and governed by separate regulations.
The rental with promise to buy and sale is different from the memoranda
of sale. The rent paid by the leaseholder can non, in any manner, be considered as portion of the monetary value
of the plus, instead it is the monetary value of the service of the plus.
As described above, the leasing dealing merely denotes the transportation of the
usufruct of a belongings from one individual to another for an agreed-upon monetary value called rent
without reassigning the principal i.e. ownership of that plus.
Agreement to get down rental on some hereafter day of the month is allowed. However, the rent
has to get down from the day of the month of bringing. If the leaseholder has paid the monetary value and the
provider holds bringing of the plus, so no rent is apt to be paid for the period of
hold. It must be noted that future or forward sale in sale/purchase dealing is non
allowable in Shariah. This is another major point, which differentiates renting from a
sale/purchase dealing under Shariah.
Beginning: Mateeha Fatima ( 2006 ) : “ DIFFERENCES AND SIMILARITIES BETWEEN IJARA AND CONVENTIONAL OPERATING LEASE CONTRACTS ”
Murabaha:
Murabaha sale is divided into two types:
1. Ordinary Murabaha sale: hypertext transfer protocol: //www.barakaonline.com/images/modes/murabaha.jpg
There are two parties to it, the marketer and the purchaser. The marketer is an ordinary bargainer who buys a trade good without depending on a anterior promise of purchase, so he displays it for Murabaha sale for a monetary value and a net income to be agreed upon.
2. Murabaha sale connected with a promise:
There are three parties to it. The marketer, the purchaser and the bank as an intermediary bargainer between the purchaser and the marketer. The bank here does non buy unless the purchaser specifies his desire and a anterior outstanding promise to buy.
The manner of Murabaha sale connected to a promise is used by the Islamic Bankss which undertake the purchase of trade goods harmonizing to the specifications requested by the client and so resell them on Murabaha to the 1 who promised to purchase for its cost monetary value plus a pre-agreed net income.
There are different signifiers to the application of Murabaha sale connected to a promise of purchase. Some of these signifiers are determined by whether the promise is adhering or non. Other signifiers are determined by how the bank receives the trade good in the instance of the first sale. The bank may have the trade good straight or through one of its agents or it can authorise the purchaser to have the trade good.
Features
Flexible refund footings
Competitive pricing
Fixed/Reducing balance footing
Minimum Murabaha finance: USD 50,000/-
Variable tenors
The practical stairss of the Murabaha sale
1. The buyer determines his demands
The buyer: Determines the specifications of the trade good he wants and requests the marketer to find the monetary value.
The marketer: Sends a citation valid for a certain period.
2. Signing a promise to buy understanding
The buyer: Promises to purchase the trade good from the bank on Murabaha sale for the cost of the trade good plus the in agreement upon net income.
The bank: Studies the petition and determines the status and securities for blessing.
3. The first sale contract
The bank: notifies the buyer of its blessing to buy the trade good. The bank may pay the monetary value instantly or as per the understanding.
The marketer: Expresses his blessing to the sale and sends the bill
4. Delivery and reception of the trade good
The bank: authorizes the beneficiary to have the trade good.
The marketer: sends the trade good to the topographic point of bringing agreed upon.
The buyer: undertakes the reception of the trade good in his capacity as legal representative and notifies the bank of the executing of the placeholder.
5. The Murabaha sale contract
The two parties ( the bank and the buyer ) sign the Murabaha sale contract harmonizing to the understanding of the promise to buy.
AREAS OF APPLICATIONS
Murabaha is one of the most widely used manners of funding by the Islamic Bankss. It is suited for partial funding of investing by clients runing in industry or trade. It enables the client /investor to buy finished goods, natural stuff, machines or equipment from the local market or through import.
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.
IJARAH Table:
Bank Meezan ( as Al Baraka reckoner was n’t located )
A
Payment Detailss
Car Description:
Honda Civic VTI Prosmatec Oriel
Cost Monetary value:
Rs. 2,121,000.00/-
Tenure:
5 Old ages
Initial Payment
Security Deposit:
Rs. 636,300.00/- ( 30 % )
Processing Fee:
Rs. 5,000.00/-
Sum:
Rs. 641,300.00/-
Monthly Payment
60 Monthly Leases of Rs. 46,277.00/- approx.
Sum
involvement payment
chief sum
Staying Balance
AT 28.25 PER ANNUM
2,121,000.00
1,479,700.00
46,277.00
34839.83244
11,437.17
1,468,262.83
46,277.00
34570.54204
11,706.46
1,456,556.37
46,277.00
34294.91115
11,982.09
1,444,574.29
46,277.00
34012.79047
12,264.21
1,432,310.08
46,277.00
33724.0272
12,552.97
1,419,757.10
46,277.00
33428.46495
12,848.54
1,406,908.57
46,277.00
33125.94362
13,151.06
1,393,757.51
46,277.00
32816.29937
13,460.70
1,380,296.81
46,277.00
32499.36448
13,777.64
1,366,519.18
46,277.00
32174.9673
14,102.03
1,352,417.14
46,277.00
31842.93212
14,434.07
1,337,983.08
46,277.00
31503.0791
14,773.92
1,323,209.15
46,277.00
31155.22418
15,121.78
1,308,087.38
46,277.00
30799.17894
15,477.82
1,292,609.56
46,277.00
30434.75055
15,842.25
1,276,767.31
46,277.00
30061.74162
16,215.26
1,260,552.05
46,277.00
29679.95012
16,597.05
1,243,955.00
46,277.00
29289.16926
16,987.83
1,226,967.17
46,277.00
28889.18739
17,387.81
1,209,579.36
46,277.00
28479.78786
17,797.21
1,191,782.14
46,277.00
28060.74894
18,216.25
1,173,565.89
46,277.00
27631.84367
18,645.16
1,154,920.74
46,277.00
27192.83973
19,084.16
1,135,836.58
46,277.00
26743.49936
19,533.50
1,116,303.08
46,277.00
26283.57918
19,993.42
1,096,309.66
46,277.00
25812.83009
20,464.17
1,075,845.49
46,277.00
25330.99712
20,946.00
1,054,899.48
46,277.00
24837.81929
21,439.18
1,033,460.30
46,277.00
24333.02949
21,943.97
1,011,516.33
46,277.00
23816.35432
22,460.65
989,055.69
46,277.00
23287.51392
22,989.49
966,066.20
46,277.00
22746.22187
23,530.78
942,535.42
46,277.00
22192.185
24,084.82
918,450.61
46,277.00
21625.10321
24,651.90
893,798.71
46,277.00
21044.66937
25,232.33
868,566.38
46,277.00
20450.5691
25,826.43
842,739.95
46,277.00
19842.48062
26,434.52
816,305.43
46,277.00
19220.07457
27,056.93
789,248.50
46,277.00
18583.01385
27,693.99
761,554.52
46,277.00
17930.95341
28,346.05
733,208.47
46,277.00
17263.54007
29,013.46
704,195.01
46,277.00
16580.41236
29,696.59
674,498.42
46,277.00
15881.20026
30,395.80
644,102.62
46,277.00
15165.52508
31,111.47
612,991.15
46,277.00
14432.99918
31,844.00
581,147.15
46,277.00
13683.22581
32,593.77
548,553.37
46,277.00
12915.79888
33,361.20
515,192.17
46,277.00
12130.30273
34,146.70
481,045.47
46,277.00
11326.31191
34,950.69
446,094.79
46,277.00
10503.39097
35,773.61
410,321.18
46,277.00
9661.094188
36,615.91
373,705.27
46,277.00
8798.965363
37,478.03
336,227.24
46,277.00
7916.537542
38,360.46
297,866.77
46,277.00
7013.332781
39,263.67
258,603.11
46,277.00
6088.861884
40,188.14
218,414.97
46,277.00
5142.624134
41,134.38
177,280.59
46,277.00
4174.107027
42,102.89
135,177.70
46,277.00
3182.785992
43,094.21
92,083.49
46,277.00
2168.124104
44,108.88
47,974.61
46,277.00
1129.571799
45,147.43
0.00
