“Car Leasing in Islamic Banks”

Islamic Banking:

Islamic banking refers to a system of banking or banking activity that is

consistent with the principles of Islamic law (Sharia) and its practical
application through the development of Islamic economics. Sharia prohibits
the payment of fees for the renting of money (Riba) for specific terms, as
well as investing in businesses that provide goods or services considered
contrary to its principles (Haraam). While these principles were used as the
basis for a flourishing economy in earlier times, it is only in the late 20th
century that a number of Islamic banks were formed to apply these principles
to private or semi-private commercial institutions within the Muslim
community.

“Islamic Bank’s Leasing”

Islamic banks use term for car leasing called Ijarah means lease, rent or wage.
Generally, Ijarah concept means selling benefit or use or service for a fixed price or wage.
Under this concept, the Bank makes available to the customer the use of service of assets /
equipments such as plant, office automation, motor vehicle for a fixed period and price.

:3Major Islamic Banks Offering car Leasing (Ijarah) to Discuss

in this Project:

1.

2.

3.
when we visit Meezan Islamic bank’s car Ijarah (Leasing) there we interview auto
finance manager main question which were ask to him by 1 of our team member are
given below:

 What is the mechanism of decision making at your department?

 Who is here to change products or services?
 Who can change the terms and conditions regarding car leasing?
 Is this really Islamic way of leasing car or Auto finance?

Manager Entertain our answers well and we also take help from bank’s website to
get answers regarding our project:

Decision Making:
According to Meezan Banks auto finance manager and their Website their head
office is situated in Karachi and there are some board of directors who

Conditions regarding car leasing:

Car Ijarah, Pakistan’s First Islamic Car Financing

As a step towards Meezan Bank’s mission to provide a one-stop shop for innovative value
added Shariah compliant products, Meezan Bank’s Car Ijarah unit provides a car
financing, based on the principles of Ijarah and is free of the element of interest.

Car Ijarah is Pakistan’s first Interest Free car financing based on the Islamic financing
mode of Ijarah (Islamic leasing). This product is ideal for individuals looking for car
financing while avoiding an interest-based transaction.

Meezan Bank’ Car Ijarah is a car rental agreement, under which the Bank purchases the
car and rents it out to the customer for a period of 3 to 5 years, agreed at the time of the
contract. Upon completion of the lease period the customer gets ownership of the car
against his initial security deposit.

Car Ijarah also features Used Vehicles!

In addition to our leasing of new cars, Meezan Bank also provides the unique opportunity
of leasing second hand, both locally assembled and imported vehicles. This feature is
specifically designed as a highly economical option. The Used Car Ijarah facility is made
available at a minimum-security deposit as low as 20%. Financing of used cars are subject
to a selection criteria.

Shariah Compliance
Car Ijarah, designed under the supervision of Meezan Banks Shariah Supervisory Board,
is uniqe leasing facilities provided by other banks.

• Difference in the Rights & Liabilities of Owner v/s User

• Calculation of lease rentals in case of total loss or theft of vehicle
• Takkaful instead of Insurance

• Permissibility for Penalty of Late Payment of Rent under Islamic

Shariah

Key Features of Car Ijarah

• Low monthly rental

• Rental paid after delivery, not in advanced
• Fastest processing and delivery
• Tracker option available
• Minimum security deposit as low as 10%
• All new, used, local, imported and luxury vehicles can be
financed

Rental Calculations
 For information on calculation of monthly rentals contact use our Car Ijarah Calculator or
call our 24/7 Call center.

Apply for Car Ijarah!

To apply for Meezan Bank’s Car Ijarah, fill out a customer application form (available at
any Meezan Bank Ltd. Branch), attach the required documents and get your financing
approved in a 1-2 working days.

For further details make an appointment with an officer or call our 24/7 Call center

Advantages of Ijarah

 Ijarah provides the following advantages to the Lessee:

 Ijarah conserves the Lessee' capital since it allows up to 100% financing.
 Ijarah gives the Lessee the right to access the equipment on payment of the first
installment. This is important as it is the access and use (and not ownership) of
equipment that generates income.
 Ijarah arrangements aid corporate planning and budgeting by allowing the
negotiation of flexible terms
 Ijarah is not considered Debt Financing so it does not appear on the Lessee'
Balance Sheet as a Liability. This method of "off-balance-sheet" financing means
that it is not included in the Debt Ratios used by bankers to determine financing
limits. This allows the Lessee to enter into other lease financing arrangements
without impacting his overall debt rating.
 All payments towards Ijarah contracts are treated as operating expenses and are
therefore fully tax-deductible. Leasing thus offers tax-advantages to for-profit
operations.
 If the equipment is used for a relatively short period of time, it may be more
profitable to lease than to buy.
 If the equipment is used for a short period but has a very poor resale value, leasing
avoids having to account for and depreciate the equipment under normal
accounting principles.
The thrust for Islamic Banking is founded on the desire to submit to the
Divine Instructions on all transactions, particularly those involving exchange
of money for money. However, it would be quite unfair to limit Islamic
Banking to elimination of Riba only.

Riba is but one of the major undesirable elements of an economic

transaction, the others being Gharar (uncertainty) and Qimar (speculation).
While elimination of these objectionable aspects in a transaction is indeed a
critical aim of Islamic banking system, it is by no means its ultimate
objective.

At the heart of Islamic Banking is a system of commercial transactions that

not only provides Halal modes of commercial transactions by avoiding that
which is obnoxious and objectionable, but also fosters ethical, fair and just
practices.

A key element of Islamic economics is distribution of equitable rewards to the

different factors of production. Islamic economic system seeks system of
Redistributive justice where concentration of wealth in a few hands is
countered and flow of money into economy is fluent. Islamic Banking is,
therefore, seen as a lynchpin to achieving the economic and social goals of
the Islamic economic system.

Riba

It has been argued in vain for long in some circles that the prohibition in
Islam is that of excessive interest only. Or that it is the interest on
consumptive loans that has been forbidden and as such loans extended for
commercial purposes are entitled to an excess over the principal amount lent.
Such tendentious arguing fails to give due understanding to verses 278 and
279 of Surah Al-Baqarah (quoted below).

“O ye who believe! Be afraid of Allah and give up what remains (due

to you) from Riba (usury) (from now onwards) if you are (really)
believers! 2:278
And if you do not do it, take notice of war from Allah and His
Messenger! But if you repent, you shall have your capital sums 2:279

However, this does not mean that Islam prohibits any gain on principal sums.
In Islam, profit is the recognised reward for capital. When capital employed in
permissible business yields profit that “excess over capital” becomes the
rightful and just claim of the owner of the capital. As a corollary, the risk of
loss also rests exclusively with the capital and no other factor of production is
expected to incur it.

Another important element of Islamic finance is that profit or reward can only
be claimed in the instance where either risk of loss has been assumed or
effort has been expended. Profit is therefore received by the provider of
capital and wages/remuneration by labour/manager.

A depositor in an Islamic bank can therefore make earnings on his or her

deposit in several ways. Through return on his capital when that capital is
employed in a business venture; through sharing of profit when his capital is
part of the capital that is employed in a partnership, and finally through
rental earnings on an asset that has been partially financed by his capital.

Islamic financing: Asset-based financing

A key feature of Islamic banking is that unlike conventional banks which deal
primarily in money and financial securities, Islamic financing is related to an
asset that is a feature of the transaction, and quite often the principal feature
itself. From this springs an important distinguishing feature of Islam wherein
Islamic financing is always based on illiquid assets that have intrinsic value.
Profit to Islamic financing is generated through bonafide sale of these assets.

Conventional banking, on the other hand, is free of such limitations. It lends

money and makes its earnings through this act of lending. Its earnings are
unconcerned with the economic fate of its lending.

Alfalah Car Ijarah

A Shariah compliant car-leasing scheme with added features such

as:

• No upfront registration charges

• No upfront insurance premium

• No rentals before delivery of car

The facility applies to all locally-assembled new cars up to Rs 4 million. Used cars not older than
three years can also be considered.

A Perspective:

The history of Islamic banking from its recorded inception is less than 40
years old. From a humble beginning in a small village in Egypt in the late
60’s, it has spread to the four corners of the world. By normal standards in a
time span that is less than half a century it could have hardly been expected
to establish foothold in Muslim world, let alone make its presence felt in
Muslim-minority countries. Yet such has been its phenomenal rate of growth
that not only is it taking firm roots in its homestead, but is also attracting
genuine interest among the standard bearers of conventional banking and in
swathes of land where Muslims are a small minority only.

Still there is much ground left to cover. In Pakistan, Islamic Banking is less
than 3% of the Banking sector. Even in the Gulf states, where it has a larger
footprint, in no single country is the volume of Islamic banking more than a
third of the entire sector.

Many blame Islamic Banking’s small share against conventional banking to a

smaller portfolio of products. A standard complaint against Islamic banks is
that they do not have the same variety of financial instruments as found in
conventional banking. Though valid to an extent, this popular jeremiad needs
to be seen in the perspective of Islamic Banking’s brief history against more
than two centuries of conventional banking adopted in full force across the
globe, its competition against an entrenched system of banking and the
constraints within which it must operate.

Notwithstanding, Islamic banking is still growing at more than twice the

growth rate of conventional banking worldwide, and while it may not have the
latter’s plethora of financial products, its repertoire of Islamic financial
products is steadily increasing.

In the following space, principal Islamic instruments are briefly described

to acquaint the reader with their fundamental aspects. Following that,
Islamic Products in BAL-IBD’s portfolio are illustrated in terms of their
features.

Decision Making and Data Mining in Bank Alfalah

Islamic Bank:
Their decision making is done by the board of directors and they try to
made decision on the basis of research for this they have R&D ,Research
and Development department who find out defects and facts regarding
customer satisfactions , and after their research papers yearly basis they
send the quotations to board of directors to approve/ Disapprove or to
make some suggestions about the research for this purpose they use
Statistical tools and surveys to know what to do and how to do .
Dubai Islamic Bank has the unique distinction of being the world’s first
Islamic bank, a pioneering institution that has combined the best of
traditional Islamic values with the technology and innovation that
characterise the best of modern banking.

Since its formation in 1975, Dubai Islamic Bank has established itself
as the undisputed leader in its field.

Eligibility

Minimum Age at the time of Maximum Age at the time of Finance

Customer Class
Application Maturity
Salaried 21 Years 60 Years
Self Employed Professional 21 Years 65 Years
Self Employed Businessman 21 Years 65 Years

You are Eligible for Dubai Islamic Auto Finance if:

Your Monthly Net Income is Rs.10,000

You Have Been Working For

Salaried 3 Months
Self Employed Professional 6 Months
Self Employed Businessman 12 Months
Documents Required
 • Copy of primary applicant’s CNIC.
• Copy of co-applicant’s CNIC (if applicable).
• 2 passport size photographs.
• Latest salary slip.
• 6 months Bank statement (if applicable).

• Bank certificate (if applicable).

Features

Flexibility

• New or Used Cars.

• Local or Imported/Re-conditioned Cars.
• Payment plan with tenure options ranging from 1-7 years.
Free Tracker Device & Monitoring All vehicles financed by DIBPL are installed with a Tracking device on Bank’s
• Ready Delivery and Advance Booking.
expense by the top Tracking companies in Pakistan. Monitoring charges are
also borne by the Bank.
• Income clubbing option.

Lowest Insurance/Takaful Rates Guaranteed Lowest Insurance/Takaful rates compared to any other Bank.

Payment Advance Booking Cases No monthly rental payments will be made by the customer before delivery of
the car in Advance Booking cases.

Monthly Rental Tracker & monitoring charges are free of cost, yet monthly rentals are
competitive and affordable as per industry standards.

Financing Amount DIBPL will finance up to 85% of the car value.

Minimum financing: Rs.100,000

Maximum financing: Rs.3,000,000

Islamic Product We provide fast and hassle free processing of application through a Sharia
compliant process.
Official Document Regarding Sharia Board
 References

http://www.dibpak.com/AutoFinance.aspx

http://www.google.com.pk/search?hl=en&ei=pAuMSZ70G
NXLkAWQsP2sDA&sa=X&oi=spell&resnum=0&ct=result
&cd=1&q=dubai+islamic+bank+pakistan+car+leasing&spe
ll=1

http://www.phonebook.com.pk/Dynamic/CompanyDetail.as
px?Comp_ID=40480&k=&Class_ID=272&City_ID=56&S
earchType=cat

http://www.bankalfalah.com/about/download/Bank%20Alfa
lah%20Annual%20Dec%202006%20Final%20march%201
4,2007.pdf

http://www.bankalfalah.com/islamic/consumer_banking.asp
www.meezanbank.com