ibf project.docx - Ques 1 The term Ijara(Leasing in Arabic...

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Ques 1: The term Ijara (Leasing) in Arabic literally means to give something on rent. An ijarah contract is a contract of exchange which is popular due to its similarity to a conventional lease. Ijara contracts are used in Islamic Banking, Project finance as well as in Sukuk. In an Ijara contract one party purchases and leases out the equipment required by the client for a rental fee. The duration of the rental and the fee are agreed in advance and ownership of the asset remains with the lessor. An example of an Ijara contract is an Islamic Bank purchasing a house for a customer, and adding management costs. The customer then pays a rental fee until the total cost has been paid off, at which point the ownership of the asset is transferred to the customer. QUES 2: It is allowed in Shariah that the lessor signs a separate promise, (but not an agreement or contract) to gift the leased asset to the lessee at the end of the lease period, subject to his payment of all amounts of rent. There can also be a unilateral promise by the lessee to purchase the asset at the end of the Ijarah period. Alternatively, there may be an undertaking by the bank to sell the asset to the lessee at the end of the Ijarah period. However, Ijarah agreement should not be dependent either on the promise by the lessee (to purchase) or the undertaking by the bank (to sell). This arrangement is called 'Ijarah wa iqtina and it has been allowed by a vast majority of contemporary scholars and is widely used by the Islamic banks. The validity of this arrangement is subject to two basic conditions: The agreement of Ijarah itself should not be subjected to signing this promise of sale or gift but the promise should be recorded in a separate document. The promise should be unilateral and binding on the promisor only. It should not be a bilateral promise binding on both parties because in this case it will be a full contract affected to a future date, which is not allowed in the case of sale or gift. QUES 3: A conventional mortgage or conventional loan is a home buyer's loan that is not offered or secured by a government entity. It is available through or guaranteed by a private lender or the two government-sponsored enterprises. Ijarah is a term of Islamic fiqh. Lexically, it means ‘to give something on rent’. In the Islamic jurisprudence, the term ijarah is used for two different situations. In the first place, it means ‘to employ the services of a person on wages given to him as a consideration for his hired services.’ The employer is called mustajir while the employee is called ajar .
QUES 4: There must be at least two parties entering into an ijarah contract; a person giving a lease or lessor; and a person accepting the lease or lessee. Both contracting parties should be fully qualified and possess legal capacity to execute the contract. They must be sane, adult and free, thus, a mentally-incapacitated person like a child and insane person cannot enter into an ijarah contract. Except when such transaction is conducted by a legal representative or wali, or guardian in case of a child, then the contract will render valid.

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