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Assignment:

Ijara VS murabaha

DEFINITIONS:

IJARA MURABAHA

The termIjaraliterally means rent, Asingle asset Trust is created wherebythe Trust purchases the property, andthen leases the property to thecustomer. A portion of each monthlypayment goes towards ownership,until the customer owns 100%.

Murabaha is an acceptable form ofcredit sale under Sharia. Similar instructure to a rent to ownarrangement, the intermediary retainsownership of the property until theloan is paid in full.

Execution:

Ijara Murabaha

Transferring of usufruct not

ownership

To another person for an

agreed price, at an agreed

consideration.

Subject of lease

Valuable, Identified andQuantified

Anything which cannot be

used without consuming

cannot be leased out; e.g.,

money, wheat etc.

Period of lease

Must be determined in clear

terms at the time of contract

All Liabilities of ownership are

borne by lesser

The rental must be determined at the

time of contract for the whole period

of lease.

Applications:

http://www.ijaraloans.com/?p=116http://www.ijaraloans.com/?p=116http://www.ijaraloans.com/?p=116http://www.ijaraloans.com/?p=116

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In an Ijaraislamic financetransaction, you are technically a tenant. You sign

a lease obligating you to a rent payment over a period of time.

owever, unlike a typical rental property lease, you are responsible for all the

maintenance of the property, and you have all the other rights and duties of ahomeowner.

Once you have fulfilled your obligations under the lease or promise to

purchase, you become the owner of the property.

Murabaha:

Permissions and Restrictions:

Permissions Restrictions

Ijara

The bank is allowed to lease the asset The Transaction must be under Shairah

Compliance.

The leased asset can be used differently by

different users,with the express permission ofthe lesser.

There should be at least one year lease period

It is permissible that different amounts of rent

are fixed for different phases during the lease

period.

There should be separate contracts for sale and

lease

The agreement to sell at the end of the lease

must be separate

The intention of the client is to avoid interest

related transactions

Murabaha

In a Murabaha (cost-plus) contract, it is permitted A Murabahah attributed to a future date is invalid

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for the financier/seller to charge the customer aprice that is higher than the market price.

in Shariah.

it is also permitted for the seller/financier to usethe interest-rate as a benchmark in determiningthe profit.

Conclusion:

A Murabahah attributed to a future date is invalid in Shariah. But leasing can be attributed to a

future date.

A Murabaha can not be transacted on a future date as the sale would be executed

simultaneously after taking delivery from the supplier and seller would never bear its risk which

Shariah does not permit . But in leasing it is permissible, because in leasing the asset remains

under the risk and ownership of the lessor throughout the leasing period.