Ijarah Facility Agreement

In today`s Islamic finance, ijara mawsoofa bi al dhimma is renting something (such as a house, office or factory) that has not yet been produced or built. This means that the contract ijara mawsoofa bi al dhimma is combined with an Istisna contract for the construction of what it is that will provide the service or utility. [18] The financier finances its manufacture, while the party begins to harm the asset after “delivering” it. While futures sales generally do not comply with Sharia law, ijarah is permitted to be used, provided that the rent/lease payment does not begin until the customer receives delivery. Sharia law also requires that the asset be clearly specified and that the rental rate be clearly defined (although the interest rate may vary on the basis of the agreement of both parties). [19] In this agreement, the person who needs immediate money sells an asset or property that he owns to the bank. He then rents it back for a fixed period and pays the bank`s rent for the use of the asset. However, the bank now holds the assets; At the end of the term of the contract, it transfers ownership to the client. According to M.T. Usmani, “certain requirements of Shari`ah are often overlooked” in real-world ijarah transactions, such as when an unforeseen circumstance results in the destruction of the asset, but the tenant is required to continue to pay the rent, in violation of the principle that the lessor assumes responsibility for his property and offers all use to the tenant. [20] Faleel Jamaldeen lists three characteristics of ijarah that distinguish it from conventional leasing:[3] Forward lease (ijara mawsoofa bil thimma): This contract is a combination of construction financing (istisna) and a negotiable lease.

Since this lease is executed for a future date, it is called term leasing. The term lease contracts buy the project (usually a construction project) as a whole at the time of completion or in tranches (parts) of the project. The Islamic finance theorist Muhammad Taqi Usmani lists in his work Islamic Finance: Principles and Practices Seventeen principles of “rental” (leasing, which refers to the Islamic leasing used by Usmani with synonym ijarah) on – although “the principles of Ijarah are so numerous that their complete discussion requires a separate link.” [5] Some of the rules include the agreement on the cost of the lease and the period during which it will last; Clear contractual terms assignment agreement for which the tenant uses the property to which he must comply; The lessor (owner of the leased property) wants to agree to bear all “debts arising from the property”, etc.[5] Usmani lists eleven “fundamental differences between the contemporary financial lender” and the “leasing authorized by Shari`ah”. [6] Ijarah wa-iqtina[11] [11] [12] is also called al ijarah muntahia bitamleek (“leasing ending with ownership”). [13] Like an ijara thumma bay`, it can be both a lease agreement and a sales contract. However, in an ijara wa iqtina contract, the transfer of ownership occurs as soon as the taker pays the purchase price of the asset – at any time during the leasing period. [14] An ijarah transaction consists of two elements: a sales contract and a lease agreement.