Transcript lecture 21 kashy.ppt

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IJARAH
LECTURE 21
By
Dr. Syed Zulfiqar Ali Shah
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Summary of Last Lecture
•Islamic Banks’Ijarah Muntahia-Bi-Tamleek
•Procedure for Ijarah Muntahia-bi-Tamleek
•Issues Concerning Modern Use of Ijarah
•Assignment of the Leased Assets and Securitization of Leases
•Potential of Ijarah
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Layout
•Summary of Guidelines For Islamic Bankers
on Ijarah
•Risk mitigation in case of Ijarah
•Auto Ijarah compared with conventional leasing products
•A hypothetical case study on Ijarah
•Accounting treatment of Ijarah
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SUMMARY OF GUIDELINES FOR ISLAMIC BANKERS ON IJARAH
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Summary of Guidelines for Islamic Bankers on Ijarah
1. According to Islamic principles of finance, there is no difference
between operating and finance leases; if all of the four essential
elements relating to contracting parties, subject matter,
consideration and the period in Ijarah are taken care of, Ijarah can be
used as the mode of modern business by the financial institutions in
the form of Ijarah Muntahia-bi-Tamleek. The deciding factor in this
regard is the risk relating to ownership that must remain with the
lessor and sale should be separate from the lease.
2. The lease of an identified asset cannot commence before the bank
takes the possession of the asset to be leased. If the time of
possession of the asset to be leased is unknown, the whole
arrangement will be provisional.
3. Any arrangement of two contracts into one contract is not
permissible in Shar¯ı´ah. Therefore, IFIs cannot have the agreement
of hire and purchase built into a single agreement.
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
4. When the period of lease comes to an end, the bank can transfer the
ownership to the client or dispose of it in the open market. If the
bank transfers the ownership to the lessee, the proper sale
agreement or gift deed should be executed. The promise to transfer
the ownership is binding on the promisor only; the other party must
have the option not to proceed. The AAOIFI Standard provides for
promise by the lessor, while many Islamic banks, as in the case of
Pakistan and other jurisdictions, take undertaking from the lessee
and deem it binding on him. Abiding by the AAOIFI’s Standard in this
regard seems to be justifiable and nearer to the spirit of the
Shar¯ı´ah.
5. The lessor bears expenses relating to the corpus of the asset, i.e.
Takaful, accidental repairs, etc., while operating expenses related to
running the asset have to be borne by the lessee. Takaful and other
costs incurred by the bank can be recovered in the lease rental,
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
subject to transparency and mutual understanding. If the customer
pays the Takaful cost as agent of the bank, it will be reimbursed to
the client by the bank.
6. A bank can jointly acquire an asset with a customer who wishes to
get the asset on lease; the bank can then lease its share of the asset
as per the undertaking of the customer. The rental to be received by
the bank should be in proportion to its share in the ownership of the
asset.
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Guidelines for Islamic Bankers on Ijarah (Cont’d)
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Summary of Today's Lecture
•Summary of Guidelines For Islamic Bankers
on Ijarah
•Risk mitigation in case of Ijarah
•Auto Ijarah compared with conventional leasing products
•A hypothetical case study on Ijarah
•Accounting treatment of Ijarah
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Thank You….
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