The major differences between Car Ijarah & Car Leasing are as follows:
Rights & liabilities of Owner v/s User
An Islamic Ijarah is an asset-based contract, i.e. the Lessor should have ownership of the asset during the period of the contract. Under Islamic Shariah, all ownership related rights and liabilities should lie with the owner while all usage-related rights and liabilities should lie with the user.
A conventional lease contract does not distinguish between nature of these liabilities and places all liabilities on the user of the asset, contradictory to Islamic Shariah.
Continuation of lease rentals in case of total loss or theft of vehicle
If the leased vehicle is stolen or completely destroyed, the conventional leasing company continues charging the lease rent till the settlement of the Insurance claim.
Under the Islamic system, rent is consideration for usage of the leased asset, and if the asset has been stolen or destroyed, the concept of rental becomes void.
Takaful instead of Insurance
Legally (in accordance to Pakistan’s Law and Regulations), it is required for all leasing entities to insure the leased assets. As such, Islamic Banks insure their assets through Takaful only, which is Islamic product for insurance. Takaful will be explained in detail in future postings.
Permissibility for Penalty of Late Payment of Rent under Islamic Shariah
In most contemporary financial leases, an extra monetary amount is charged, in their income, if the rent is not paid on time. This extra amount is the considered as Riba (usury) and is Haram.
Under Ijarah, the Lessee may be asked to undertake, that if he fails to pay rent on its due date, he will pay certain amount to a charity, which will be administered through the Islamic Bank. For this purpose the bank maintains a charity fund where such amounts may be credited and disbursed for charitable purpose.
If you are wondering how does it effect the installments?
The answer is unfortunately, not much.
For a car priced at an even Million Rupees with 50% downpayment and a 3 year tenor the rental/instalment payments are incredibly similar:
Bank Alfalah @ 19% with 3.15% insurance: Rs.20953/month
BankIslami with ‘profit’ & 3.15%insurance: Rs.20585/month
Hi,
As I see in your post there is lots of good information available on Islamic finance. Islamic finance has change a lot in the recent few years. Rest of the world specially American and European countries want to get advantage of these change in there own interest. Innovation of sukuk also one of the big reason that non Islamic countries look on the Islamic finance market.
Sukuk is an alternate way of investment where the investor get the benefits of investment and its treated as rent on investment, to avoid the interest on investment which is strictly prohibited in Islam.I have write on same topic check my post : http://portfolioanalyst.blogspot.com/2010/09/islamic-debt-bond-market.html, http://portfolioanalyst.blogspot.com/2010/09/sukuk-bond.html,http://portfolioanalyst.blogspot.com/2010/10/how-big-is-sukuki-bond-market-and-what.html.
I want to write one guest post for your blog .If you agree than contact me at roseanderson26@gmail.com
Sure. you can use the contact form to send me the article. And one of the links that you have posted do not work.