practical car ijarah

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Practical Car IjarahPractical Car Ijarah

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Leasing/Ijarah ContractLeasing/Ijarah Contract

Conventional Leasing Conventional Leasing Car IjarahCar Ijarah

There are two types of There are two types of contracts, Financial lease contracts, Financial lease and loan for car financing. and loan for car financing. Both these contracts Both these contracts contain conditions that are contain conditions that are contravenes with the contravenes with the Islamic Sharia'h. Islamic Sharia'h.

Financing lease contains Financing lease contains conditions of hire conditions of hire purchase, which is not purchase, which is not permissible by Sharia'h. permissible by Sharia'h.

Car financing or loan Car financing or loan agreement contains agreement contains conditions of interest. conditions of interest. Interest is considered Interest is considered RRibaiba by Sharia'hby Sharia'h

The Ijarah contract does The Ijarah contract does not contain any condition not contain any condition that makes the contract that makes the contract void under Sharia'h void under Sharia'h perspective.perspective.

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Rights & Liabilities of Lessor and Rights & Liabilities of Lessor and LesseeLessee


In Conventional Leasing In Conventional Leasing Products, the Customer is Products, the Customer is responsible for all kinds of responsible for all kinds of losses or damages to the losses or damages to the Leased asset, irrespective Leased asset, irrespective of the circumstances.of the circumstances.

If the insurance company If the insurance company does not compensate the does not compensate the entire outstanding amount entire outstanding amount in case of total loss, the in case of total loss, the customer is liable to pay customer is liable to pay the balance. the balance.

All risks pertaining to All risks pertaining to ownership are borne by ownership are borne by Lessor.Customer only Lessor.Customer only bears usage-related risksbears usage-related risks

Lessor bears the risk of Lessor bears the risk of Insurance claim Insurance claim settlement.settlement.

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Rentals recovery in case of theft and Rentals recovery in case of theft and lossloss

Conventional Conventional Leasing Leasing

Car IjarahCar Ijarah

If the Leased Asset is If the Leased Asset is stolen or completely stolen or completely destroyed, the destroyed, the conventional leasing conventional leasing company or Bank company or Bank would continue would continue charging the lease rent charging the lease rent till the settlement of till the settlement of the Insurance claim the Insurance claim

Under the Islamic Under the Islamic Ijarah, rent is Ijarah, rent is consideration for consideration for usage of the leased usage of the leased asset, and if the asset asset, and if the asset has been stolen, has been stolen, destroyed or destroyed or temporarily out of temporarily out of order and not in use of order and not in use of Customer, the concept Customer, the concept of rental becomes void. of rental becomes void. In such situations In such situations rental is not charged rental is not charged from the lessee.from the lessee.

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Penalty for late paymentPenalty for late paymentConventional Leasing Conventional Leasing Car IjarahCar Ijarah

In most contemporary In most contemporary financial leases, an extra financial leases, an extra monetary amount is monetary amount is charged if rent is not charged if rent is not paid on time. This extra paid on time. This extra amount is the amount is the considered Riba and is considered Riba and is Haram. Haram.

This amount is taken by This amount is taken by the leasing institution the leasing institution into their income. into their income.

Under Ijarah, the Lessee Under Ijarah, the Lessee may be asked to may be asked to undertake that if he fails undertake that if he fails to pay rent on its due to pay rent on its due date, he will pay a date, he will pay a certain amount to a certain amount to a charity Fund, which will charity Fund, which will be administered through be administered through the Islamic Bank. the Islamic Bank.

For this purpose the For this purpose the bank maintains a charity bank maintains a charity fund where such fund where such amounts may be amounts may be credited and disbursed credited and disbursed for charitable purposes.for charitable purposes.

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Insurance premiumInsurance premium



Insurance is Insurance is independent of the independent of the lease contract. The lease contract. The insurance expense of insurance expense of the asset is directly the asset is directly borne by the lesseeborne by the lessee

TakafulTakaful / / InsuranceInsurance should be at the should be at the expense of the Lessor expense of the Lessor and not at the expense and not at the expense of the lessee. The of the lessee. The Lessor may increase Lessor may increase the lease rent to the lease rent to recover any costs recover any costs incurred by him in incurred by him in connection with the connection with the asset. However, as a asset. However, as a matter of principal, the matter of principal, the cost should be paid for cost should be paid for by the Lessor.by the Lessor.

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Registration ChargesRegistration Charges



Lessee is responsible Lessee is responsible for the Registration of for the Registration of Leased Vehicle.Leased Vehicle.

The Leased The Leased Asset(vehicle) is Asset(vehicle) is registered in the name registered in the name of the Bank and of the Bank and registration charges registration charges are paid by the Bank are paid by the Bank (Lessor).(Lessor).

The Lessor may The Lessor may increase the lease rent increase the lease rent to recover any costs to recover any costs incurred by him in incurred by him in connection with the connection with the assetasset

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Purchase of assetPurchase of asset


Under conventional Under conventional leasing contracts, the leasing contracts, the vehicle is automatically vehicle is automatically transferred in the name transferred in the name of the customer upon of the customer upon completion of the lease completion of the lease period, whether or not period, whether or not he wants to purchase it. he wants to purchase it.

There is not such clause There is not such clause in the Ijarah Agreement in the Ijarah Agreement that Leased Asset will that Leased Asset will automatically transfer automatically transfer to Lessee.to Lessee.

Separate sale Separate sale agreement is required agreement is required to execute sale to execute sale transaction at the end of transaction at the end of lease term. lease term.

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Commencement of RentalsCommencement of Rentals



In case of Booking of In case of Booking of Leased Asset, recovery Leased Asset, recovery of Lease installment of Lease installment commence after the commence after the payment of cost of payment of cost of Asset to Asset to manufacturer/dealer.manufacturer/dealer.

In case of Car Ijarah, In case of Car Ijarah, the recovery of rentals the recovery of rentals is associated with is associated with delivery of Leased delivery of Leased Asset. Asset.

Rental recovery should Rental recovery should not be commenced not be commenced before the delivery of before the delivery of Asset.Asset.

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Signing of Lease ContractSigning of Lease Contract


Lease Agreement can be Lease Agreement can be signed by the Lessee signed by the Lessee and Lessee any time and Lessee any time even if the Leased Asset even if the Leased Asset is not owned by the is not owned by the Customer.Customer.

In case of Ijarah, the In case of Ijarah, the Ijarah Agreement can Ijarah Agreement can not be signed by the not be signed by the Lessor and Lessee Lessor and Lessee unless:unless:

Asset has come in to Asset has come in to existenceexistenceAssets is in the Assets is in the ownership of the ownership of the LessorLessorLessor has taken Lessor has taken possession of the possession of the Asset Asset

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Termination before deliveryTermination before delivery


The customer will suffer The customer will suffer loss of interest paid loss of interest paid during the booking during the booking period because period because installment commence installment commence immediately after immediately after payment of cost of asset payment of cost of asset to the to the Manufacturer/Dealer.Manufacturer/Dealer.

The loss of customer is The loss of customer is only limited to actual only limited to actual loss, if any, suffered by loss, if any, suffered by the Lessor on sale of the Lessor on sale of asset in the open asset in the open market.market.

Since the customer has Since the customer has not paid any rental not paid any rental during the booking during the booking period, no other cash period, no other cash loss is expected under loss is expected under Ijarah.Ijarah.

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DOCUMENTATION DOCUMENTATION OF IJARAHOF IJARAH

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IJARAH AGREEMENTIJARAH AGREEMENT

Ijarah Agreement is the basic Ijarah Agreement is the basic

document which contains all terms document which contains all terms

and conditions pertinent of Ijarah of and conditions pertinent of Ijarah of

particular Asset(s).particular Asset(s).

Ijarah Agreement shall invariably be Ijarah Agreement shall invariably be

signed after the Lessor has taken the signed after the Lessor has taken the

possession the Asset and not earlier. possession the Asset and not earlier.

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ADDENDUMS TO IJARAH ADDENDUMS TO IJARAH

AGREEMENTAGREEMENT

Description of the Ijarah Description of the Ijarah

Asset Asset

Schedule of of Ijarah RentalsSchedule of of Ijarah Rentals

Receipt of AssetReceipt of Asset

Demand Promissory NoteDemand Promissory Note

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DESCRIPTION OF IJARAH DESCRIPTION OF IJARAH ASSETASSET

This document contains the detailed This document contains the detailed description about the Leased Asset description about the Leased Asset agreed between the parties e.g agreed between the parties e.g Name, Make ,Model,Engine No., Name, Make ,Model,Engine No., Chassis No., Registration No. etc etc.Chassis No., Registration No. etc etc.

This documents shall be signed This documents shall be signed signed after Delivery of asset to signed after Delivery of asset to the Lessee and not earlier. the Lessee and not earlier.

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SCHEDULE OF IJARAH SCHEDULE OF IJARAH RENTALSRENTALS

This schedule contains a table which shows:This schedule contains a table which shows:

Amount of rental (Monthly/Quarterly/Half Yearly)Amount of rental (Monthly/Quarterly/Half Yearly)

Date of Payment of each rentalDate of Payment of each rental

This schedule will also contain the date This schedule will also contain the date on which first rental is due.on which first rental is due.

This documents shall be signed signed This documents shall be signed signed after Delivery of asset to the Lessee and after Delivery of asset to the Lessee and not earlier.not earlier.

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RECEIPT OF ASSETSRECEIPT OF ASSETS

This document confirms that This document confirms that customer has taken the possession of customer has taken the possession of Leased Asset as described in the Leased Asset as described in the earlier document “Description of earlier document “Description of Ijarah Asset”.Ijarah Asset”.

This document is only signed by the This document is only signed by the Lessee on receipt of Asset, as an Lessee on receipt of Asset, as an acknowledgement of receipt of acknowledgement of receipt of described asset under Ijarah Contact.described asset under Ijarah Contact.

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PROMISSORY NOTEPROMISSORY NOTE

After signing of Ijarah Agreement, After signing of Ijarah Agreement, the amount of rentals become Debt the amount of rentals become Debt (Dyan) to the Lessee.(Dyan) to the Lessee.

Promissory Note is Lessee’s Promissory Note is Lessee’s acknowledgement to Debt amount acknowledgement to Debt amount and its promise to pay.and its promise to pay.

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UNDERTAKING TO PURCHASE LEASED UNDERTAKING TO PURCHASE LEASED ASSETASSET

This documents contains undertaking This documents contains undertaking from the Lessee that he/it will from the Lessee that he/it will purchase the Leased asset on the purchase the Leased asset on the purchase Price corresponding to the purchase Price corresponding to the Purchase Date.Purchase Date.

This document contains a schedule This document contains a schedule which shows Purchase Price(s) during which shows Purchase Price(s) during the Ijarah term on which the Lessee the Ijarah term on which the Lessee can purchase the asset by making can purchase the asset by making lump sum payment.lump sum payment.

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OTHER DOCUMENTSOTHER DOCUMENTS

Undertaking for Personal use Undertaking for Personal use of Ijarah Assetof Ijarah Asset

Trust ReceiptTrust Receipt

Authorization to Take Authorization to Take possession of Leased Assetpossession of Leased Asset

Sale DeedSale Deed

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