SBP Islamic Banking Bulletin, July-Sep 2007

The period of lease must be determined in clear terms

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The period of lease must be determined in clear terms. The lessee cannot use the leased asset for any purpose other than the purpose specified in the lease agreement. If no such purpose is specified in the agreement, the lessee can use it for whatever purpose it is used in the normal course. The lessee is liable to compensate the lessor for any damage to the leased asset caused by any misuse or negligence on the part of the lessee. The leased asset shall remain in the risk of the lessor throughout the lease period in the sense that any harm or loss caused by the factors be- yond the control of the lessee shall be borne by the lessor. It is necessary for a valid lease that the leased asset is fully identified by the parties. The rental must be determined at the time of contract for the whole period of lease. In the long term lease agreements, it is mostly not in the benefit of the lessor to fix one amount of rent for the whole period of lease because the market conditions change from time to time. For this purpose it is allowed to use benchmark rate to determine the rental amounts. However, rent for the month will be fixed at the start of the month, any change in benchmark rate during the month will not cause rent for that month to change. It is also necessary to define a floor and ceiling. The lessor cannot increase the rent unilater- ally, and any agreement to this effect is void. The lease period shall commence from the date on which the leased asset has been delivered to the lessee, no matter whether the lessee has started using it or not. If the leased asset has totally lost the function for which it was leased, and no repair is possi- ble, the lease shall terminate on the day on which such loss has been caused. (Source: http://www.meezanbank.com//en/ Ijarah.aspx) Essential on Ijarah Mode of Financing approved by SBP Shariah Board, can be accessed from the fol- lowing link: http://www.sbp.org.pk/press/Essentials/ Essentials%20of%20Islamic.htm Page 9 Mode of Islamic Financing in Focus: Ijarah
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July-September 2007 IFSB Exposure Draft of “Recognition of Ratings for Shariah Compliant Financial Institutions” Islamic Financial Services Board (IFSB) has issued Ex- posure draft on Recognition of Ratings for Shariah Compliant Financial Institutions. SBP has circulated the same to various internal and external stakeholders including banks, SBP departments and others. The comments received from stakeholders will be sent to IFSB by the end of December, 2007. ADB Funded TA Project on Strengthening Secured Transac- tions- Feedback from IBIs Small and Medium Enterprises Department of SBP is implementing Asian Development Bank’s Technical Assistance (TA) on building secured transaction framework in Pakistan through an international con- sultancy firm, namely, ISC, Honk Kong. The TA aimed at developing secured transaction framework that will facilitate the use of both moveable and im- movable assets as collateral with the objective to pro-
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