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ESSENTIALS OF ISLAMIC FINANCE

ESSENTIALS OF ISLAMIC FINANCE. IJARAH. Types of ijarah. IJARAH IN QURAN AND SUNNAH. Ijarah is also validated by the Quran, Sunnah , and ijmah . IJARAH AS A MODE OF FINANCING. PROCESS OF IJARAH.

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ESSENTIALS OF ISLAMIC FINANCE

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  1. ESSENTIALS OF ISLAMIC FINANCE

  2. IJARAH

  3. Types of ijarah

  4. IJARAH IN QURAN AND SUNNAH • Ijarah is also validated by the Quran, Sunnah, and ijmah.

  5. IJARAH AS A MODE OF FINANCING

  6. PROCESS OF IJARAH • The client” Lessee” contact the bank “Lessor” with the request for ijarah leasing and enters into a promise for lease contract. It includes the offer and acceptance by the client. • The bank buys the asset required for ijarah and gets title of ownership from the manufacturer. • The bank makes payment to the manufacturer.

  7. The bank leases the asset to the client after execution of the ijarah contract which takes place after the client gets the delivery of the asset. • The lessee makes periodic fixed rental payments according to the contract of ijarah • At the end of contract period the lessee can purchase the asset from the bank under a separate sale agreement at a nominal price

  8. FOUR SCHOOLS

  9. IJARAH BONDS and sukuk

  10. SECURITIZATION OF BONDS

  11. IJARAH SUKUK STRUCTURE

  12. Sales and lease back

  13. Liability for loss

  14. Rules of ijarah

  15. Revocation of ijarah • contract of ijarah can only be revoked where the asset lost its utility or function

  16. EXAMPLE OF IJARAH FINANCING CALCULATIONS Generally, the financial institutions calculate the rental amounts as follows:

  17. Economic benefits

  18. CONCLUSION • As method of financing ijarah is still in its early stage of development and there is a lot more opportunities to expand its application. • In majority of the countries the contribution of Ijarah financing is low and the Muslim countries are also not utilizing Ijarah bonds as a mode of financing. • The research on Ijarah also shows that there is basically no major deviation to sharyah rules in ijarah contract practiced by Islamic banks.

  19. Some of the issues that should need to be addressed are that, there is very less information on Ijarah contract is available. • The other issue that should be addressed in the light of sharyah is the compensation on late payment to the lessor, as penalty on late payment is given to the charity so it does not compensate the lessor.

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