Islamic Hire Purchase Agreement

For the tenant, leasing has many advantages over direct purchase, as the use of the asset is the most important and not the one that owns it. There are many reasons, good and bad, for leasing. However, in general, it has gained momentum in the banking system, mainly due to the tax advantage it has to offer. Abu Umar Faruq Ahmad writes in Theory and Practice of Modern Islamic Finance: The Case Analysis from Australia that, at least in this country, the tenant of Ijarah wa Iqtina buying a home is in a weaker legal position than the payer of a conventional mortgage. First, the landlord/lender ijarah wa Iqtina can distribute the borrower/buyer who is “a few months late” because the borrower is a tenant and not a landlord. On the other hand, the traditional borrower/buyer/Mortgagor cannot because he has “rent security”. Second, if the lender/mortgagee, in a conventional mortgage, closes the buyer and resells the property, they are “legally required to insure the best possible price” and to provide the closed borrower with a “full account” of the resale transactions. In a Jadel-Wa-Iqtina contract, the landlord/lender has “no obligation” to the tenant. [22] Funding for Islamic leasing follows the Sharia Treaty and the spirit of the Hire Purchase Act 1967. It is modelled according to the principle of Sharia by Al Ijarah Thumma Al Bai (AITAB), which literally means leasing and later purchase. In this transaction (lease-sale[7] or lease-lease or lease)[8], the customer rents a good business and agrees to buy it in installments, so that he owns the property freely and clearly until the end of the lease.

These are two contracts: Ijarah wa-iqtina[11] (literally lease and ownership)[12] is also called al ijarah muntahia bitamleek (“leasing that ends with ownership”). [13] Like an ijara thumma bay`, it can be both a lease agreement and a sales contract. However, in an ijara wa iqtina contract, the transfer of ownership occurs as soon as the taker pays the purchase price of the asset – at any time during the leasing period. [14] Ijarah, (Arabic: , al-Ijrah, “something to rent”[1][2] or “Providing services and goods temporarily for a salary”[3] (a name, not a verb)) is a fiqh term (Islamic jurisprudence)[1] and produced in Islamic banking and finance. In the traditional fiqh, it is a contract to rent people or rent/lease services or the “Usufruct” of a property, usually for a fixed period and price. [4] When hired, the employer is called Musta`jir, while the worker is called ajir. [1] Ijarah should not lead to purchase. In conventional leasing, a “corporate leasing” does not end with a change of ownership, nor does the type of Ijarah known as al-ijarah (tashghiliyah).

[4] In Islamic finance, al Ijarah makes the purchase (Ijara wa Iqtina, or “rental and acquisition”) and generally refers to a lease of real estate (such as land, facilities, office, motor vehicle) that are leased to a customer for electricity rental and purchase payments that end with a transfer of property to the taker and follow the other Islamic rules. [4] An ijarah transaction consists of two elements: a sales contract and a lease agreement.

Comments are closed.