ISLAMIC FINANCE : IJARAH DR. YASER AL-KULAIB

Group members :Waleed AL.FuraihAhmad AL.DousariSalman AL.Mutairi

Definition

• Literally means: to give something on rent.

• It is defined as: ownership of the right to the benefits of using an asset in return for consideration {Rent}.

Ijarah Types Operating Ijarah Financial Ijarah

Situation Contracts that do not end with the transfer of ownership of leased assets to the lessee.

Contracts that end up with of ownership of leased assets to the lessee.

Transfer of ownership -Gift at the end of period.- Token of sale consideration at the end of period.- Sale at specific amount.-Sale during the leaseperiod for the remaining installments.- Gradual transfer during lease period

Operating Ijarah

Financial Ijarah(Ijarah muntahia bltamleek )

Elements of Ijarah

1. Wording.2. Contracting Parties. 3. Subject Matter {Benefit}.

Regulation of Ijarah

1. Leasing ( Ijarah ) is a contract . the owner of an

asset transfers it to another person for an agreed

period, at an agreed payment ( ujrah ) .

2. The assets must have a value

3. Must remain in the ownership of the person who own

it .

4. The things that considered as a liabilities on the

property remains on the owner but the things that

considered liability use of the property is on the

lessee .

5. The period of rent must be determined .

6.The lessee cant use the property ( asset) for

any other purpose stated on the contract .

7. The lessee repay the lessor if he caused

any harm or damage to the property.

8. natural causes damages the asset the

owner cant ask the lessor to repay him .

9. If the property owned by two persons or

more their shares distribute depending on

their proportion share .

10.The owner can give his share of the rent

to his partner not to any other person .

11.The the lessee must identify the asset ,

12. The rental must be determined at the

time of contract for the whole period of

lease.

lasing allowed by the Shari’ah

Ijarah is halal because its follow Quran, sunna and Alejmaa

Waleed has decided to study abroad after three years . So he was wondering what is the best option he got for buying or leasing a car . He has chosen the toyota FJ 2013 basic options silver color automatic gear . So he asked salman what is the best way? buying or leasing a car and Salman said buying a car by a ijarah contract or murabaha contract in KFH since the other islamic banks such as the ahli united bank only got one type of ijarah ( ijarah muntahya bltamleek ) but Ahmed does not agree with Salman and told Waleed that since there isn’t an ijarah contract in NBK you can always take a loan and buy the car or rent a car from a car rental company like Aayan leasing company that follow the islamic way of renting . So Waleed went through each option and these are the results :

(A) KFH “ Ijarah “

The car cost 10000 KD for three years the bank will lease

it to waleed at a total cost 10984 KD . Monthly

payments 165 KD , Down payment 1000 kd and the car

book value ( 4950 after three years ) .

(B) NBK “ Loan “

In NBK waleed decided to take a loan 10000 KD for three

years with 300 KD monthly payments . The contract is

Without down payment but they offer maintenance for

20 KD each 3 months. Total cost of the loan with

interest 10800 with nominal rate 5%.

(C) KFH “Murabaha” contract

The car cost 10000 KD with murabaha contract it will cost

10800 with monthly payments 300 KD for three years

without down payments .

(D) Aayan lessing company

The car cost 10000 KD with down payment 599 KD ,

monthly payment 222 KD for 2 years ,the cost for two

years contract cost 80 KD , the book value for the car

after two years 8000 KD

We conclude that KFH ijarah is the best for waleed because its has the lowest I nom. and

EAR

Company or bank : Nom I : EAR :

KFH ( IJARAH ) 3.906 % 3.977 %

NBK ( Loan ) 6.53 % 6.73 %

AAYAN 22.929 % 25.43 %

KFH ( Murabaha ) 5.218 % 5.345 %

Conclusion

We now know how the ijarah works and operates . Its one of the most important islamic financing instruments . the islamic finance protect people from falling In reba or any garar actions so our investments and assets stays halal.