Leasing or Ijara - Essential for Islamic Finance Ijara...

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Unformatted text preview: Essential for Islamic Finance Ijara (Leasing) By Yousuf I bnul Hasan I qra University Definition Leasing is a contract in which asset is transfers to user for an agreed period on an agreed consideration Ijarah is a lease contract as well as a hire contract . Both the contract are similar to each In Islamic Finance Ijarah is a lease contract under which financial institution leases equipment or a building to one of its clients against agreed rentals or installments equal to the value of the assets. Lesser or Lessee The equipment provider through financing is LESSOR Rab-Al-Maal The equipment user is LESSEE Sarif Ijarah Ijara basically facilitate the cost to be spread for large purchases into affordably installments for payment. In Ijara either the end of the transaction is the ownership of assets that acquired through lease financing or in another case the equipment is returned to financier . Ijarah Financing is a contract in which a lessee request for an equipment or a property and Lesser provide through its financing the specified and requested equipment or property. The Lessee agree to pays a monthly, quarterly, semi- annual or annual rent to lesser for the right to use equipment a specific amount within agreed time of time i.e. 12, 24, 36, 48, or 60 months OR what ever time agreed. Historical Perspective Although leasing began in 2010 B.C. but modern leasing began in the early fifties. The creation of the Investment Tax Credit in 1962 encourage growth through "tax-oriented" leasing. New products were quickly developed to meet the growing demand. Over the last 50 years, many leasing companies developed non-tax oriented products such as income funds, operating leases, limited partnerships, vendor programs, and end sharing in order to remain competitive. Equipment leasing flourished over the last 20 yrs Banking industry started leasing by giving credibility to a market place which had been previously regarded as a last-resort financing alternative. Accounting profession produced a documents to help standardize lease reporting in financial statements. Internal Revenue Regulatory Service issued guidelines to aid lesser and lessees in structuring leasing transactions . Why do Lease Business ? Cash flow - Monthly payments are generally smaller for leases than for loans and they usually require a smaller or no down payment....
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This note was uploaded on 06/19/2011 for the course ECON 202 taught by Professor Pharuddin during the Summer '11 term at The School of the Art Institute of Chicago.

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Leasing or Ijara - Essential for Islamic Finance Ijara...

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