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    Ijarah - Mode of Financing: Prepared by Team Islamic Banking and Finance

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    maarij narejo
    Ijarah is an Islamic financing structure that involves the leasing of an asset by a lessor to a lessee. It is analogous to a sale in that something is transferred for a consideration, but differs in that ownership is not transferred to the lessee. While not originally a financing mode, ijarah is now commonly used for financing due to tax benefits. Key features of an ijarah contract include the lessor retaining ownership and risk of the leased asset while the lessee bears use-related liabilities. The rental amount and lease period must be clearly defined, and the lessee cannot alter the agreed-upon use of the asset. Ijarah provides rules regarding joint ownership, damage to the asset, penalties

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    Ijarah - Mode of Financing: Prepared by Team Islamic Banking and Finance

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    maarij narejo
    17 views8 pages
    Ijarah is an Islamic financing structure that involves the leasing of an asset by a lessor to a lessee. It is analogous to a sale in that something is transferred for a consideration, but differs in that ownership is not transferred to the lessee. While not originally a financing mode, ijarah is now commonly used for financing due to tax benefits. Key features of an ijarah contract include the lessor retaining ownership and risk of the leased asset while the lessee bears use-related liabilities. The rental amount and lease period must be clearly defined, and the lessee cannot alter the agreed-upon use of the asset. Ijarah provides rules regarding joint ownership, damage to the asset, penalties

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    Ijarah is an Islamic financing structure that involves the leasing of an asset by a lessor to a lessee. It is analogous to a sale in that something is transferred for a consideration, but differs in that ownership is not transferred to the lessee. While not originally a financing mode, ijarah is now commonly used for financing due to tax benefits. Key features of an ijarah contract include the lessor retaining ownership and risk of the leased asset while the lessee bears use-related liabilities. The rental amount and lease period must be clearly defined, and the lessee cannot alter the agreed-upon use of the asset. Ijarah provides rules regarding joint ownership, damage to the asset, penalties

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    17 views8 pages

    Ijarah - Mode of Financing: Prepared by Team Islamic Banking and Finance

    Uploaded by

    maarij narejo
    Ijarah is an Islamic financing structure that involves the leasing of an asset by a lessor to a lessee. It is analogous to a sale in that something is transferred for a consideration, but differs in that ownership is not transferred to the lessee. While not originally a financing mode, ijarah is now commonly used for financing due to tax benefits. Key features of an ijarah contract include the lessor retaining ownership and risk of the leased asset while the lessee bears use-related liabilities. The rental amount and lease period must be clearly defined, and the lessee cannot alter the agreed-upon use of the asset. Ijarah provides rules regarding joint ownership, damage to the asset, penalties

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 8

    IJARAH – MODE OF FINANCING

    Prepared by Team Islamic Banking and Finance


    WHAT IS IJARAH (LEASE)?

    Ijarah is a term of Islamic Fiqh. Lexically, it means ‘to give something on rent’.
    In Islamic Commercial Law, the term ‘Ijarah’ is used for two different situations;
    1. Ijarah al Ashkash (Hire a person)
    2. Ijarah al Ay’an (Hire an asset)
    The rules of Ijarah, in the sense of leasing, is very much analogous to the rules of sale,
    because in both cases something transferred to another person for a valuable
    consideration.
    The only difference lies between Ijarah and Sale is that the ownership is not transferred is
    Ijarah as it is done in a sale contract.
    Therefore it can be easily seen that ‘Ijarah’ is not a mode of financing in its origin.
    However, due to some reasons, and in particular, due to some tax concessions it may carry,
    that this transaction is being used for the purpose of financing.
    THE STRUCTURE OF IJARAH

    IJARAH

    Al - Ayan Al - Askash

    Muntahia Bi
    Tashghaliyah
    Tamleek
    Salient Features of Ijarah Contract
     1. The lessor must be the owner of the leased asset or the agent of the legal owner; who can
    transfer the usufruct of the leased asset for an agreed period, at an agreed consideration.
     2. The subject of lease must have a valuable use. Therefore, things having no usufruct at all
    cannot be leased.
     3. It is necessary that the corpus of the leased property remains in the ownership of the
    seller, and only its usufruct is transferred to the lessee. Thus anything which cannot be used
    without consuming it like food, money etc. cannot be leased out.
     4. The ownership risk of the leased asset must be borne by the lessor, but the liabilities
    referable to the use of the property shall be borne by the lessee.
    Salient Features of Ijarah Contract
     5. The period of the lease must be determined in clear terms.
     6. The lessee cannot use the leased asset for any purpose other than the purpose specified in
    the lease agreement. If no such restriction is made, than lessee can use it for whatever purpose
    it is used for in normal course.
     7. Lessee is liable to compensate the lessor for any harm cause to the leased asset by any
    misuse or negligence on the part of the lessee.
     8. A property jointly owned by two or more persons can be leased out, and the rental shall be
    distributed between all the joint owners according to the proportion of their respective shares
    in the property.
    Salient Features of Ijarah Contract
    9. A joint owner of the property can lease his proportionate share to his co –sharer
    only, and not to other person.
    10. It is necessary for a valid lease that the leased asset is fully identified by the
    parties. 11. The rental must be determined at the time of contract for the whole
    period of lease.
    12. The lessor cannot increase the rent unilaterally, and any agreement to this
    effect is void.
    13. The rent of any part of the lease may be payable in advance before the
    delivery of the asset to the lessee but the amount shall be in account with the lessor
    and will be adjusted towards the rent after its being due.
    Salient Features of Ijarah Contract
    14. The leased period shall commence from the date on which the leased asset is delivered to
    the lessee.
    15. Total damage of the leased asset will make the leased contract null and void unless the
    lessor is able to substitute the damaged asset with another asset. In case of partially damaged,
    the lessee will be given the option to either continue with the contract with or without a
    proportionate reduction of the rental payment.
    Ijarah (lease) as a mode of financing
    1. The Commencement of Lease
    2. Different Relations of the Parties
    3. Expenses Consequent to Ownership
    4. Liability of the party in case of loss to the asset
    5. Variable rentals in long – term lease
    6. Penalty for late payment of rent
    7. Termination of lease.
    8. Insurance of the assets.
    9. The residual value of the leased asset.
    10. Sub – lease
    11. Assigning of the lease

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