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IJARAH CASE STUDY QUESTIONS

MUHAMMAD AWAIS ROLL NO: 005


MUHAMMAD ZEESHAN ROLL NO: 007
ADEEL AHMED ROLL NO: 020
Submitted to: Sir Asif Ayaz
1) Outline the key differences between conventional leasing and Islamic leasing?

The most important financial difference between Islamic permitted leasing and conventional financial
leasing is that the leasing agency must own the leased object for the duration of the lease. Ownership
of the asset is the prerequisite for leasing out its usufruct. As mentioned, Islam places great emphasis
on the sequencing.

The comparisons between ijara and conventional operating lease contracts are based on the various
facets of these contracts like ownership, identification of the risk-bearer, the nature of the asset under
the contract, and the specifics of payment.

The comparisons between ijara and conventional operating lease contracts throw up several points
of similarities. With regard to ownership of the asset, the lessor retains the right to own in both ijara
and conventional operating lease contracts. The lessor bears the risks and liabilities and the costs of
maintenance of the asset in both forms of contracts. This responsibility also pertains to instances
where the asset has been damaged due to factors that were beyond the control of the lessee.

2) How do insurance needs differ under conventional leasing and Islamic leasing?

There are two types of contracts: a financing lease and a loan for car financing. Both of the
contracts contain conditions that are not acceptable under the Sharia’a . Financing leases contain
conditions of hire purchase, which is not permissible under the Sharia’a. This makes the whole
contract void. Car financing under a loan agreement contains conditions of interest. Interest is
considered riba by the Sharia’a and this makes the condition void.

In car financing schemes, the customer is responsible for any kind of loss or damage to the vehicle,
irrespective of whether the circumstances are under his control or not. If the insurance company
does not compensate for the entire amount, the customer is liable to pay the balance.

The Ijara contract is binding under the Sharia’a and does not contain any conditions that make
the contract void.

All risks pertaining to ownership are borne by the bank. The bank will insure the vehicle and be
responsible for any loss or damage to the vehicle caused by circumstances beyond the control of
the customer, e. g., theft, loss/damage due to natural disasters like flood, earthquake etc.
However, the customer will be responsible for any damage in the event of an accident.
3) What are the key Sharia’a requirements for the Ijara contract?

Requirements in a valid ijarah are that the two sides of the exchange must both be known and
specified in such a way that eliminates the possibility of disagreement and dispute; that the usufruct
in question has a financial or market value; and also that it does not involve indulgence in haram
activities and substances( 8 ). Objects such as a dead carcass, pork, wine, and prohibited activities
such as usury, prostitution and gambling may not be the subject either of sale or ijarah.

4) Would a Car Ijara be structured identically to a home purchase Ijara?

No, they are different because a car is purchased in the name of bank, from the dealer ans so the
risk remains entirely with the bank. As the corpus of the leased property remains in the ownership
of the lessor. All the liabilities and risks emerging from the ownership are borne by the lessor.

The lessee is responsible for any loss caused to the asset by misuse or negligence. The lessee cab
also be made liable for the wear and tear which normally occurs during its use.

5) Would non-Muslims consider Car Ijara schemes a serious alternative to conventional


car finance schemes?

No, I don’t think they will take this as a serious alternative because Islam considers the
procedure in which any transaction takes place as a significant factor in all modes of financing.
The underlying difference between the Islamic and conventional modes of financing is that of
the process. To Muslims, not only the end result but also the means to it are important.

If the result is correct and the steps are wrong, or vice versa, the entire process is deemed
invalid, from a Sharia’a perspective. According to Sharia’a principles, lawful steps to lawful
results are very important.
6) Calculate the monthly rental payments when buying a new car, costing Rs. 300,000,
for a term of four years, if the potential purchaser is willing to pay a 25% security
deposit

Rs. 300,000×0.022277=6,683 per month for four years.

7) Calculate the monthly rental payments when buying a new car, costing Rs. 400,000,
for a term of three years, if the potential purchaser is willing to pay a 30% security
deposit.

Rs.400,000× 0.025664= 10,265 per month for three years.

8) Calculate the monthly rental payments when buying a new car, costing Rs. 500,000,
for a term of five years, if the potential purchaser is willing to pay a 40% security deposit.

Rs.500,000× 0.016216 = 8108 per month for five years.

9) Calculate the monthly rental payments when buying a new car, costing Rs. 350,000,
for a term of three years, if the potential purchaser is willing to pay a 45% security
deposit.

Rs.350,000× 0.020929 = 7,325 per month for three years.


10) Calculate the monthly rental payments when buying a new car, costing Rs. 600,000,
for a term of four years, if the potential purchaser is willing to pay a 50% security
deposit.

Rs.600,000× 0.015996= 9,598 per month for four years.

11) Calculate the monthly rental payments when buying a new car, costing Rs. 400,000,
for a term of five years, if the potential purchaser is willing to pay a 20% security deposit.

Rs.400,000× 0.020515 = 8,206 per month for five years.

12) Do you think that the Meezan Car Ijara contract is correctly named?

Yes, I think it is a professional name of the product offered by Meezan Bank.

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