Case Studies in Islamic Banking and Finance 1.
Order Now V xcvbxcv Under this contract, the customer selects the capital equipment or property assets to be nuanced by the bank and the bank then purchases these assets from the manufacturer or supplier and then leases them to the customer for an agreed period.
The lessee, on the other hand, obtains the use of the asset for the period of the lease subject to paying the rent. The lessee may assume the obligations, such as maintaining, insuring and repairing the asset, in return for a reduced rent.
Upon completion of the lease period the customer in the Means case discussed below, gets ownership of the car against his initial security deposit.
It is based on the principles of Jar and is completely free from the element of interest. This product is designed for interpretative individuals, looking for a car-financing scheme that helps in avoiding interest-based transactions.
Means Bank, based in Pakistan and a pioneer in this area, purchases the car and rents it out to the customer for a period of three, four or five years. V xcvbxcv completion of the lease period the customer gets ownership of the car against his initial security deposit.
Suffuses is the right of enjoying a thing, the property of which is vested in another, and to draw from the same all the profit, utility and advantage that it may produce, provided it be without altering the substance of the thing. Items without suffuses cannot be leased.
It is necessary for a valid lease contract that the corpus of the leased asset remains in the ownership of the seller, and only its suffuses is transferred to the lessee.
In Car Ajar, the asset remains under the ownership and at the risk of the bank and the customer only pays the rental for the use of the asset, Just like the rent of a house. The customer makes a series of lease payments over a specified period of time, and may have the option at the end to buy the item from the lesson and owner at a pre specified residual value.
Leasing was not originally a mode of financing. It was simply a transaction meant to transfer the suffuses of a property from one person to another for an agreed period and an agreed upon consideration.
Leasing can be used as a mode of financing, in Islamic banks, as an alternative to conventional car financing. However, the consideration of leasing as a mode of financing should be based on certain notations.
There must be a significant difference between leasing and an interest-bearing loan. It is no secret that an Islamic bank or financial institution will take into consideration the same factors as a conventional bank when determining the rental payments and residual value.
These would include the rate of inflation, the creditworthiness of the Jesse, the opportunity cost value of the money as reflected by market interest rates and so on. This fact is not hidden. In the final analysis, however, the difference is in the form of the contract.
If the lease is structured in accordance with the various conditions within Islamic Jurisprudence, t will contract no rib and ensure that it cannot contain such forbidden rib in the future e.
In terms of late payment fees, etc. The most important financial difference between Islamic leasing and conventional leasing is that, with Islamic leasing, the leasing agency must own the leased object for the duration of the lease.
Therefore, although leasing a car from a car manufacturer or car dealership may in principle be permitted for Muslims if the contract satisfies the other conditionsMuslims should investigate further.
In many cases, the car dealership may in fact use a bank or other financial intermediary to provide a loan for the present value of lease payments, and charge the customer interest on this loan. This would constitute the forbidden rib. The differences between conventional and Islamic financing schemes are described in he sections below.
Leasing versus Conventional Financing Conventional Financing The conventional financing schemes provide financing for purchasing a car; that is, in essence the financier is giving a loan and charging interest. It is not a financing scheme; rather it is a lease contract.
As mentioned earlier leasing is a contract whereby suffuses rights to an asset are transferred by the owner, known as the lesson, to another person, known as the lessee, at an agreed-upon price, called the. NET, and for an agreed-upon period of time, called the term of lease. Islamic car financing is based on pure rentals.
This is because it is one of the foremost conditions of the Islamic mode of leasing that an object cannot be leased out unless it is in the possession of the lesson. The car is purchased in the name of the bank from the dealer and so the risk mains entirely with the bank.
As the corpus of the leased property remains in the ownership of the lesson, all the liabilities and risks emerging from the ownership are borne by the lesson.
The lessee is responsible for any loss caused to the asset by misuse or negligence. The lessee can also be made liable for the wear and tear, which normally occurs during its use.
But the lessee cannot be made liable for a loss caused by factors beyond his control. The agreements CIO 5 with traditional car financing generally do not differentiate between these two situations.
In a lease based on Islamic principles, both situations should be dealt with separately. The major difference occurs because the buyer can buy back the car against the security deposit in the case of Ajar, whereas in conventional banking the down-payment remains with the bank, and no buy-back of the car can occur against the down- payment.
There is a minimum and a maximum requirement for the security deposit.Ttxxtxy tzz= 11 12 33ˆˆ ˆˆ+++L ˆˆ for some real numbers tij, called the components of the tensor in the standard basis, where i and j extend from 1 to 3 (0 to 3).
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