ch 7 Ijara.docx - Ijar a Introduction to Ijara derived from...

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Ijar a
Ahmed El-Shanawany 01224493178 / 01024933905 Introduction to Ijara derived from ‘ajr’ which means reward or wages for work or services. Ijara is a bilateral contract 1) lessor Muajir (owner of asset Majur) 2) lessee Mustajir (user of asset Majur) Owner of the asset transfers its usufruct ا ا تنل ف ا ع ح ق to the lessee for an agreed period and lessee should be able to derive benefit (Manfaah) from it without consuming it, while ownership of asset remains with the lessor along with all risks pertaining to ownership. Physical possession is with the lessee (mustajir) - who is not liable for any loss or reduction in of value of the asset, unless caused by misuse. Consideration or rent paid by lessee to lessor - Ujrah هرجا According to Shariah leased asset needs to have beneficial use and should be Halal, Leased asset needs to be tangible, non-perishable, valuable, identifiable and quantifiable. م ل م و س ، غ ي ر ق ا ب ل ل ل ت ل ف ، ذ و ق ي م ة ، ق ا ب ل ل ل ت ح د ي د او قل ي ا س ا كل م ي Perishable items like food, fuel cannot be leased, nor can money be leased. Ijara is very similar to the conventional lease. Ijara in Islamic Banks service-based contract. Used to meet short and medium term financing needs, involving rent or hire purchase of an asset based on an agreed rental fee and period. Islamic bank buys the object of the Ijara and leases it to its client 1) Client may rent for a fixed period for use only; and when lease expires, asset reverts to lessor 2) Client may decide to buy the item and rental will consist of rent plus instalments when lease expires ownership is transferred to the lessee. Types of Ijara 1. Ijara or Regular Ijara or Operating Lease also called true lease. Contracts of rent only, rent either fixed for entire period with no transfer of ownership Ujrah over the period not sufficient to recover full value of the asset. Lessor can recover the remaining value of asset by re-leasing the asset or by selling it. Ijara contract can be terminated by either lessee or Lessor with due notice. Ijara commonly used for renting an apartment or a vehicle Lessor holds the risks and responsibilities related to ownership Lessee liable for proper use and care of the asset, any damage due to misuse or negligence, not regular wear and tear, needs to be compensated by lessee. Islamic banks may use an index like LIBOR to determine a competitive profit to decide Ujrah. 2. Ijara wa Iqtina or Ijara Muntahia Bittamleek or Financial Lease Ownership of the leased asset passes to the lessee at the end of the period Tamleek Ijara Muntahia Bittamleek can be of different types a. Full value of asset amortized طسقي during the lease period in the rental payments b. Fixed amount, decided at the beginning of lease contract, paid by lessee at the end c. Legal sale before the end of the lease period at a price equivalent to the remaining ijara. d. Market value of the asset is paid by lessee at the end of the lease period. e. Gradual transfer of the ownership to lessee made during lease period and rental payments

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