Principles of Islamic Finance gif
I
Joint Purchace
Baced on Shikat-al-milk. Bank takes title
Customer agrees to repay principal by the buying over time, the Bank’s share. Consequently the cus-
tomer’s ownership interest in the property increases and the Bank’s decreases
The customer leases the Bank’s share, with periodic adjustments made to rental to reflect the fact that a reducing bank share is being leased
jara is used as a mode of financ-
ing by a large number of Islamic financial institutions all over the world in different kinds of shapes and for various products. Some IFI’s use simple Ijarah products in the shape of Ijara Wal Iqtina (Ijara which winds-up with sale in the end) or Ijara ending with gift of leased assets to the client from institutions.
On the other hand there are some institutions that inno- vate new products with combinations of other modes of Islamic Finance with Ijara for example structure of Dimin- ishing Musharaka and Ijara Sukuk, which are structured with the combination of various modes like sale from third party, Partnership in D.M etc with Ijara.
In Islamic terms there is no restrictions of using Ijara as a banking product. But there are some conditions which must be followed by the Product Development De- partment of IFI while using simple Ijara as a product or structuring any product containing Ijrah because without keeping in view all these conditions, the product may be- come non Shariah Complaint.
In this article we will define Ijara, the basic rules of Ijara in Shariah and the most common applications of Ijara in IFI’s.
Some Basic Shariah Rules of Ijara:
1 In Ijara/Leasing, the leased assets/commodity re-
.
mains in the ownership of the leaser and only its usufruct is transferred to the lessee. The risk and liability is bared by the owner of the assets. 2. An important rule of Ijara is that anything, which can- not be used without consuming the same, cannot be leased out, like money, fuel, foods etc. as such all these things cannot be used without consuming. 3. Fixation of rent in Ijara is a must. Without fixation of rent Ijara becomes invalid. However, rental can be fixed or it can be floated; for a floating rental it is necessary to specify the rent for the first period and the rent of the subsequent period of Ijara and this must be linked with a certain benchmark. Such benchmarks can have a ceiling and floor but should be based on a clear formula with the consent of the customer. 4. The leaser cannot increase the rental for any phase unilaterally. It can be mutually agreed in the agree- ment that the rental will be increased by a specified amount/proportion after specified intervals. 5. All liabilities emerging from ownership are borne by the leaser. Thus, maintenance of the asset, other than routine operation expenses, during the lease period is the responsibility of the bank, the owner of the asset, as the benefit (rental) is linked to the responsibility. The lessee can be made liable to the wear and tear that normally occurs to the asset dur- ing its use. Any harm caused by factors beyond the control of the lessee shall be borne by the leaser. Takaful (insurance) expenses will be borne by the leaser and not by the lessee. The lease period shall start when the
6.
Diminishing Musharakat/Ijarah Structure
Property/Asset
Customer (20% Share) (Customer Share
Increasing ownership
Customer
Acquistion cost
installments to pur- chace 80% share
Customer
Rental
Lease of reducing Bank’ share
Bank’ Share Bank
Bank(80% share) (Bank’ share)
asset is delivered to the lessee in working con- dition, not from the date of payment from the leaser to the supplier. Once it is delivered the lease period will start, no matter whether the lessee has started its use or not. The lessee can be asked to pay any
7.
advance that will have to be adjusted from the rental after it is due. If any harm is caused to the leased
8.
assets by any misuse or negligence on the part of the lessee, he will be liable to compensate the leaser for the damage. The leasing contract is terminated if
9.
the asset ceases to give the service for which it was rented. If the leased assets become damaged
10.
during the period of the contract, the same can be repaired to make the asset usable, the con- tract will remain valid. If the parties to the lease do not con-
11. travene the terms of the agreement, the lease
2010 June GlobalIslamic Finance 29
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80