Islamic Lease Financing - Ijarah in Shariah Framework
Explore the Islamic Shariah-compliant lease financing method of Ijarah and its global application in Islamic Finance Institutions (IFIs). Learn about Ijarah Muntahia Bittamleek, the unique organs of the Islamic Shariah Compliant Framework, and the process flow of Islamic leasing. Discover the strict adherence of Islamic banks and financial institutions to the Shariah standards in Ijarah financing transactions.
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ISLAMIC LEASE FINANCING IJARAH Islamic Shariah Framework of Ijarah and its global application in IFIs Knowledge sharing session by: Sadaqat Ullah Khan, Senior Executive VP & Head of Shariah Advisory, Audit, Compliance & Ex cution AlHuda CIBE - UAE
Islamic lease Financing Ijarah Ijarah Muntahia Bittamleek The Ijarah Muntahia Bittamleek, is a mode of Islamic lease financing, ending- up with the transfer of ownership of the leased asset from the lessor (bank) to the lessee (customer) at the end of the Ijarah lease term.
Islamic leasing - Ijarah Product structure & process flow Promise to Lease by Customer 1 Transfer of assets to customer 5 Lease Agreement & Asset delivery 4 3 Bank (Lessor) Customer (Lessee) Payment of Lease Rental by Lessee Purchase of Asset & Payment of Price 2 Seller of Asset 3
Islamic lease Financing Ijarah Islamic Shariah Compliant Framework Islamic banks & other Financial institutions are required to follow strictly the Islamic Shariah Compliant respect to Ijarah financing transactions; as per the International Shariah Standards relating to the Ijarah financing. Framework with
Islamic lease Financing Ijarah Unique Organs of the Islamic Shariah Compliant Framework 1. Islamic Shariah Screening: TheBusiness activities & use of the asset must be permitted in Islamic Shariah: 2. Promise to Lease: To be submitted by the Customer to the Bank. 3. Purchase of Asset by the Bank: Payment of price along with delivery and possession (Ownership) of the assets by the Bank.
Islamic lease Financing Ijarah Unique Organs of the Islamic Shariah Compliant Framework 4. Execution of Lease Agreement: Between the Bank and Customer for the agreed Lease Period, Rental terms & delivery of asset. 5. Payment of Rentals by Customer to Bank: During the lease term, includes Fixed & Variable Rental, as agreed. 6. Transfer of Asset Customer: At the end of lease period by way of sale deed or gift deed. ownership to
Islamic lease Financing Ijarah Islamic finance beyond the religious boundaries There is no restriction on providing Islamic finance based on religion. And Islamic lease financing may be provided to individuals belonging to any religion if the purpose and use of the asset are permissible in Islamic Shariah.
Islamic lease Financing Ijarah Islamic finance is not permitted However, providing finance is not allowed to anyone, if the use of the asset to be leased will be for purpose not allowed; and violating the Islamic Shariah guidance.
Islamic leasing Ijarah Finance SHARIAH RESTRICTION ON IJARAH FINANCING It is not permitted to provide Ijarah financing to the following Shariah-repugnant / non- compliant business activities such as: Trade in all kinds of Alcohol/Liquors/wine etc. Trade in Tobacco or its by-products Trade in Pork or its by-products Gambling / Casinos / Night clubs & similar
Islamic leasing Ijarah Finance SHARIAH RESTRICTION ON IJARAH FINANCING It is not permitted to provide Ijarah financing to the following Shariah-repugnant / non- compliant business activities such as: Financial Services dealing in interest Conventional Insurance Services. leasing a vehicle for transporting the goods/merchandise prohibited in Islam; as mentioned in the previous slide
Islamic lease Financing Ijarah Ijarah Muntahia Bittamleek The Islamic Leasing Framework is a grand umbrella structure under which the varieties of leasing products are being offered by Islamic banks & other IFIs.
Islamic leasing Ijarah Finance Applications of Ijarah Process Ijarah financing products may covers the followings: Real Estate / Properties Industrial Machinery & Equipment Agricultural Machinery & Equipment Transportation Healthcare / Medical Equipment IT / FinTech - Computer system infrastructure
Ijarah transaction Documentation The following documents, duly approved by Shariah Supervisory Board, are required to be executed between the Lessor & Lessee: 1. Promise to Lease: (from Customer) 2. Assets Purchase Agreement: (Bank & Seller/Client) 3. Ijarah Lease Agreement: (Between Bank & Customer ) 4. Sale Undertaking: (from Bank to Customer) 5. Purchase Undertaking: (from Customer to Bank) 6. Services Agency Agreement: (Bank & service provider) 7. Sale agreement at the end of lease period (Bank to Cust.)
Thank you for your Attention QUESTION AND ANSWERS SESSION Sadaqat Khan, Senior Executive Vice President Head of Shariah Advisory, Audit, Compliance & Ex cution AlHuda CIBE - UAE CELL No. +971-507758329 Email: sadaqatg@hotmail.com
