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