2. Prepared for
Dr. Noraini Mohd Ariffin
Prepared by:
Abdul Ghoni G1036443
Delil Khairat G1027047
Hashim Ahmad Shiyuti G1021697
Mahamat Al Mourtada G1114142
2
4. Introduction
• a contract under which one party obtains the right of usufruct of an
asset owned by another party for an agreed period against an agreed
consideration namely rent.
Ijarah
• Sales: the corpus of property is transferred to the purchaser
• Ijarah: only its usufruct is transferred, the corpus remains in the
ownership of the lessor.
Ijarah v.s. Sales
• a type of lease contract, which concludes with the purchase of the
asset.
• It combines a lease contract and sale contract in one trading
document, but the contract of leasing and sale work separately.
• The asset comprises of Machinery, Equipment, Software and
Hardware or Motor Vehicles which are Non-Hire Purchase Act good
Al-Ijarah
Thumma Al-Bai
(AITAB)
4
5. Nature of Conventional Lease:
Trading or Financial Activity?
• An agreement whereby the lessor conveys to the lessee in
return for a payment or series of payments the right to use an
asset for an agreed period of time (IAS 17 (revised); MASB 10)
Lease
• A lease that transfers substantially all risks and rewards
incident to ownership of an asset. Title may or may not
eventually be transferred (IAS 17 (revised); MASB 10, para 3)
Finance Lease
• A lease other than a finance lease and does not involve
substantial transfer of risks and reward incident to
ownership.
Operating Lease
Financial lease extent the scope and function of lease beyond the trading
function and allow lease to be more flexible.
5
6. Operating Lease vs Financial Lease
Aspect Operating Lease Financial Lease
Ownership of the
asset
Both legal and beneficial ownership are with the
lessor.
The lessor only possessed the
beneficial ownership of the asset.
Maintenance
obligations
The lessor is still fully obligated in administrative
affairs and basic maintenance of his asset,
whereby the lessee will only be liable on the daily
maintenance of the asset. He then has to pay
rental payment as agreed in the agreement.
The lessor will transfer almost his
entire original obligation on the
asset to the lessor. Thus,
responsibility on the asset
insurance, quit rent etc is on the
shoulder of the lessee.
Risks Any risk such as a small damage (which is not
caused by the lessee’s negligence) on the asset
will be under the responsibility and liability of the
lessor.
All types of risks whether it is
caused by the negligence of the
lessee or otherwise, is under the
responsibility of the lessee.
Termination Can be terminated anytime with the consent of
both parties without having to pay any indemnity
or compensation or the sum of arrears of the rent
(depending upon the terms of the contract). After
the termination of the contract, the asset will be
reverted back to the owner of the asset as usual.
Can be terminated but the lessee
must pay all the arrears of the rent
in one lump sum. Then, the asset
will be reverted back to the lessor
fully. This is the motive and the
objective of this type of lessee.
6
7. Introduction
AITAB in Malaysia
Client identifies and
approaches vendor of
the Asset
The dealer prepares all
related AITAB
documents, as the agent
of the Bank
The car will be delivered
to the
client, commencing
rental payment.
Upon completing all the
agreed payment, both
parties shall enter into
another agreement in which
the customers pay a nominal
amount of RM1 signifying
sale contract.
If the customer
defaulted, bank can take
an action against him
and repossess the asset
7
8. Literature Review
The Objective of Shari’ah
Mustafa Omar &
Dzuljastri
• Almost all the scholars of
Maqasid are unanimous
about the general objectives
of al- Shari’ah, which are to
promote welfare (Jalb al-
Masalih) and avoid vices
(Dar’ al- Mafasid) (Ibn
Ashur, 1998, p.190).
Imam Al-Gazali
• in safeguarding the 5 from
religion to wealth.
• Dusuki pointed out that Al-
Shatibi approves al-Ghazali’
list and sequence.
• Each of the worldly
purposes (preservation of
faith, life, posterity, intellect
and wealth) is meant to
serve the single religious
purpose of the Hereafter
(Nyazee, 2000)
QS 59:7
• Wealth circulation among
the people either for the
purposes of consumption or
investment.
• Among the means to achieve
such an objective are the
doctrine on the prohibition of
riba, hoarding and monopoly
of wealth.
• Innovation and all endeavors of a new product must comply with Maqasid of the Shariah
• If such dharurah hypothetically exists, then it would rather legitimize dealing with
conventional finance directly. (Dusuki 2009)
• it is widely felt that its time to apply the principle of sadd al-dhara’ that close the potential
avenues for circumventing the law (Hassan, Zubair 2005)
8
9. Literature Review
Issue Highlighted by Scholars on AITAB
Originally introduced as contracts between two parties both ijarah and
murabahah ended up in the form of securities. Bypassing controversies
around operating leases versus financial leases (Siddiqi: 2005b).
According to contemporary jurists and experts on Islamic finance, ijarah
has great potential as an alternative to interest in respect of evolving a
shari’ah compliant financial system. (Ayub).
The problem and issues related to AITAB are as follows (Nurdianawati
Irwani):
• Customer's attitude towards the facility.
• Inexperienced bank officers
• Non-cooperative dealers
• Documentation and stiff competition in the market.
9
10. Literature Review
Issue Highlighted by Scholars on AITAB
• It results in more risks, liabilities, and responsibilities that most banks would
attempt to avoid as much as possible methods of transferring ownership.
• There are some scholars who argue that the second contract should grant a
call option to the hirer to eventually acquire the asset after completing the
ijarah contract (Bughuddah, 2001; Elahi, 2000; Salleh, 1986).
Ownership
• the owner must remain liable for basic maintenance, although this term is
often difficult to differentiate with clarity from operational
maintenance, which is the responsibility of the hirer (Belder, 2004).
Maintenance
• Generally speaking, an act of default in due payment signifies a breach of contract. When
two parties or more enter into a valid contract, they will be bound by terms and conditions
in the contract. Breaching any of these terms will cause the innocent party to suffer a loss
that needs to be compensated (Baharum, 2000).
• There are mixed reactions from the scholars. Some of them give a very strict rule that
penalty for late payment of rentals is not permissible (Hairetdinov, 1998; Meezan
Bank, 2004; Usmani, 2002)
Penalty in
case of
default.
• Islamic hire purchase is unfortunately lacking in an explicit Shari’ah regulatory framework.
Any dispute arising from the transaction of Islamic hire purchase will be referred to the
conventional regulations (Ismail, 1999)
Legal
Treatment
10
11. •assets and expenses need to be recorded in the bank’s book
•a conventional leasing financing involves the effective transfer of all risks and rewards associated with the
ownership to the lessee’ (ayub 288)
•Even it is becoming worst when the said asset is only registered the title but not recorded in the bank’s book/statements
•The effect of the ownership will lead to the increase profitability of the banks and reduce the company’s/client’s profit.
•The depreciation of the banks will reduce since the assets are not recorded in their account and the vice versa for the
books of client
Recording
Issues
•The profit charged must be based on the rental rate, not on the interest
•The rental rate is based on real assets and the interest rate is independent from the assets factor.
•Mirroring to the conventional financing leads to serious issue i.e. the dependability to the interest rate.
•The interest rate is not based on the real assets value. The charges will be similar nor matter where is the location or type.
The real assets value in which the rate will be determined by the market forces
Rental rate v.s.
Interest rate
•Elimination of khiyar al-‘ayb or the option of defect to the lessee.
•Mejelle:“any buyer in Islamic law has an automatic implied warranty against latent defects in the goods purchased”
Combining
Contract
•Ijarah is a binding contract (cannot be revoked unilaterally) Ayub pg 286
•Contract of ijarah will be automatically terminated if the property is damaged and can not give further benefit
•In current AITAB implementation, a lessee is responsible to pay the rental up to the period of the repossession by the
bank (lessor).
•A lessee is also responsible to pay for the all the cost of the repossession
•A lessor will revalue the assets and the revalued amount will be used in determining the net payment need to be done by
the lessee before terminating the contract
•= Total AITAB Financing – Ijarah installment – all related cost (repossession related cost) – revaluation of the assets =
Outstanding to be made in clearing the contract.
•a few issues need to be highlighted:-
•The calculation of termination is similar to the normal conventional financing.
•The basis of loan calculation being used in determining the financing settlement
Termination/
Repossession
AITAB is using HPA 1967 which is totally unislamic….why not islamic
Issues
Assessment on Current Ijarah Product (AITAB) in the Market
11
12. Frequency of Appearances in Islamic Banks Website
Ijarah vs Leasing vs Hire Purchase
No. Name Ijarah and/or AITAB Conventional
Terminology
1. Bank islam Malaysia Berhad 4 (2 english and 2 malays Lease – 18
Leasing – 2
Hire purchase – 0
2. Bank Muamalat 6 Lease – 14
Leasing – 7
Hire purchase -12
3. Amislamic bank berhad 2 Lease – 5
Leasing- 0
Hire purchase – 2
4. Alrajhi Banking & Investment
Corporation (Malaysia) Berhad
1 Lease – 7
Leasing 0
Hire purchase – 0
5. Affin Islamic Bank Berhad 4 (2 in annual report and
2 in brochure inside the
annual report)
Lease – 3
Leasing – 0
Hire purchase – 3
12
13. 6. Alliance Islamic Bank Berhad 2 Lease – 75
Leasing -2
Hire purchase – 10
7. Maybank Islamic Berhad 0 Lease – 0
Leasing -0
Hire purchase – 0
8. Public Islamic Bank Berhad 3 Lease – 6
Leasing – 1
Hire purchase - 17
9. Kuwait Finance House 33 Lease – 14
Leasing – 3
Hire purchase – 1
13
Frequency of Appearances in Islamic Banks Website
Ijarah vs Leasing vs Hire Purchase
14. 10. CIMB Islamic Bank 7 Lease – 45
Leasing – 0
Hire purchase – 5
11. Hong Leong Islamic Bank Berhad 0 Lease – 0
Leasing - 0
Hire purchase – 0
12. RHB Islamic Bank Berhad 1 Lease – 16
Leasing -2
Hire purchase – 4
13. HSBC Amanah Malaysia Berhad 3 (put on bracket
as a lease or hire
purchase)
Lease- 19
Leasing – 1
Hire purchase- 4
14
Frequency of Appearances in Islamic Banks Website
Ijarah vs Leasing vs Hire Purchase
15. Ijarah vs Leasing vs Hire Purchase
14. Standard Chartered Saadiq
Berhad
0 Lease- 0
Leasing – 0
Hire purchase- 0
15. Bank Kerjasama Rakyat
Malaysia Berhad
2 lease– 106
Leasing – 0
Hire purchase – 1
16. Asian Finance Bank Berhad 0 Lease – 0
Leasing -0
Hire purchase – 0
15
16. Ijarah vs Leasing vs Hire Purchase
Overall, all the Islamic banks are willing to use the conventional term
i.e. lease/leasing and hire purchase instead of ijarah terminology.
Yes, it is only a matter of terminology but the impact is very big.
The standardization of terminology will lead to a common
understanding.
A common understanding will make the concept of all ijarahs will be
understandable across the board.
16
17. Ijarah vs Leasing vs Hire Purchase
The mirroring to the conventional terms will lead to the misconception in a lay man’s head
in which the conventional understanding of leasing will come first and this will indoctrinate
his mind.
--
We are instructed to talk based on their understanding.
It is a hadith narrated by Ad-Dailami with sanad dhaif from ibn Abbas
This hadith shows that, it is important to have the common understanding between the
communicators and the recipients.
17
18. Detail Comparisons Among Malaysian Islamic Banks:
Aspects Analysed
1. Purchase and Leasing of Ijarah Asset
2. Off Balance Sheet Statements
3. Treatment on the disposal or sale of Ijarah
Asset
4. Expenses Incurred by Lessor and Depreciation
of Ijarah Assets
5. Ijarah Rental Received
6. Material and Immaterial Direct Cost
18
19. Details Comparisons
1.Purchase of Ijarah Asset & Leasing Ijarah Asset
Ijarah assets do not register in Bank’s Statement of Financial Position.
Prepaid lease payment is considered as bank’s assets in the Balance Sheet.
Amortisation of prepaid lease payment in the statement of cash flow.
The Ijarah assets do not register in Bank’s Statement of Financial Position
The assets consider as a normal financing assets
The Ijarah assets do not register in Bank’s Statement of Financial Position
The assets consider as a normal financing assets
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
Does not match with the off balance sheet statements
19
20. Details Comparisons
1.Purchase of Ijarah Asset & Leasing Ijarah Asset
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
Does not match with the off balance sheet statements
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets.
The bank combined both Ijarah Muntahiyah Bi Tamlik and AITAB under one category.
Under the notes of account – the bank recognizes the Ijarah assets financing
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
20
21. Details Comparisons
1.Purchase of Ijarah Asset & Leasing Ijarah Asset
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets.
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
The Ijarah assets do not register in Bank’s Statement of Financial Position.
The assets consider as a normal financing assets
21
22. Details Comparisons
2.Off Balance Sheet Statements
Leased assets/Leasehold land that normally has an indefinite economic life and the title is not expected to
be passed to the lessee by the end of the lease term is treated as an operating lease. The payment made on
entering into or acquiring a leasehold land is accounted for as prepaid lease payments. The prepaid lease
payments are amortised on a straight-line basis over the lease term.
There is no specific information provided for leased assets.
There is no specific information provided for leased assets.
The needs to follow the FRS117 in which to include the investment properties held under lease based on
the finance lease accounting technology
There is a statement on the recognition on income in which will be based on contractual agreement
There is a clear statement by the bank that they are following BNM/GP8-i in recognizing the financing
income by using the effective income rates
22
23. Details Comparisons
2.Off Balance Sheet Statements
The needs to follow the FRS117 in which to include the investment properties held under lease based on the
finance lease accounting technology
The bank clearly defined the meaning of operating and financing lease.
In the notes to the account, the bank is offering two types Ijarah i.e. AITAB and Ijarah Muntahiyyah Bi-Tamleek.
But the accounting treatment is the same.
In the notes to the account, the bank is offering two types Ijarah i.e. AITAB and Ijarah Muntahiyyah Bi-Tamleek.
But the accounting treatment is the same.
The bank do lease a few asset from others under the term of Operating Lease
The needs to follow the FRS117 in which to include the investment properties held under lease based on the
finance lease accounting technology
There is a statement on the assets sold under lease which being classified into finance lease and operating lease
There is a statement of combination between Ijarah Muntahiyyah Bittamlik and AITAB
23
24. Details Comparisons
2.Balance Sheet Statements
In general, the reporting is much more similar to conventional concept except the terminology
and name of the products.
A clear statement on the treatment of income and expense for operating lease is given.
Operating Leases
Leases, where the the Bank does not assume substantially all the risks and rewards of ownership, are classified as
operating leases and the leased assets are not recognised in the statement of financial position of the Bank. Rentals
payable under operating leases are accounted for on a straight line basis over the periods of the leases unless
another systematic basis is more representative of the time pattern in which economic benefits from the leased
assets are consumed and are recognised in profit or loss under “General administrative expenses.”
Abdul Rahim Abdul Rahman, 2012, pg 139 ‘This contract has not involved the transfer of ownership to the other
party as there has been no intention to purchase or to own the ijarah object by the interested part (operating
Ijarah)
Is there any definition gap between the two?
N/A
The needs to follow the FRS117 in which to include the investment properties held under lease
based on the finance lease accounting technology
N/A
24
25. Details Comparisons
3.Treatment on the Disposal or Sale of Ijarah asset
No provision being made as all the costs being transferred to the lessee.
No information available for the disposal activity.
No information available for the disposal activity.
No information available for the disposal activity.
No information available for the disposal activity.
There is a statement saying that the disposal of the prohibited means being
done as much as RM290,417.77 in that particular of period.
25
26. No information available for the disposal activity.
No information available for the disposal activity.
No information available for the disposal activity.
There is information regarding the disposal activity of the assets but
there is no specification regarding the disposal of Ijarah assets.
There is information regarding the disposal activity of the assets but
there is no specification regarding the disposal of Ijarah assets.
Details Comparisons
3.Treatment on the Disposal or Sale of Ijarah asset
26
27. There is no specification regarding the disposal of Ijarah
assets.
There is no specification regarding the disposal of Ijarah
assets
There is no specific information regarding the disposal of
Ijarah assets.
There is no specific information regarding the disposal of
Ijarah assets.
There is no specific information regarding the disposal of
Ijarah assets.
There is no specific information regarding the disposal of
Ijarah assets.
Details Comparisons
3.Treatment on the Disposal or Sale of Ijarah asset
27
28. Details Comparisons
4.Expenses Incurred by Lessor and Depreciation of Ijarah Asset
The Group and the Bank have lease commitments in respect of vehicle and equipment on hire, all of which
are classified as operating leases.
A summary of the non-cancellable long term commitments.
Lease commitments on Operating Lease . No provision being made for financing lease.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
The only direct operating expenses incurred in conjunction with rental income is for investment
properties.
No depreciation of ijarah assets available in the book of lessor
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor
28
29. Details Comparisons
4.Expenses Incurred by Lessor and Depreciation of Ijarah Asset
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor
29
30. Details Comparisons
4.Expenses Incurred by Lessor and Depreciation of Ijarah Asset
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
No expenses being recorded for Ijarah assets.
No depreciation of ijarah assets available in the book of lessor.
30
31. Details Comparisons
5.Ijarah Rental Received
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOFI.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOFI.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOFI.
There is information on the advance rental paid by the customers recorded in the statements.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOFI.
There is information on the advance rental paid by the customers recorded in the statements
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOFI.
The recorded rental is only for the operating lease.
31
32. Details Comparisons
5.Ijarah Rental Received
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
32
33. Details Comparisons
5.Ijarah Rental Received
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
N/A
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
The rental income being lump together with the other financing income.
The treatment is similar to conventional hire purchase recognition.
Not compliant with AAOIFI.
33
34. Details Comparisons
6.Material and Immaterial Direct Cost
No provision being made as all the costs being
transferred to the lessee.
No provision being made as all the costs being
transferred to the lessee.
No provision being made as all the costs being
transferred to the lessee.
No provision being made as all the costs being
transferred to the lessee.
No provision being made as all the costs being
transferred to the lessee.
34
35. Details Comparisons
6.Material and Immaterial Direct Cost
No provision being made as all the costs being
transferred to the lessee.
No provision being made as all the costs being
transferred to the lessee.
No provision being made as all the costs being
transferred to the lessee.
No provision being made as all the costs being
transferred to the lessee.
No provision being made as all the costs being
transferred to the lessee.
35
36. Details Comparisons
6.Material and Immaterial Direct Cost
No provision being made as all the costs being transferred
to the lessee.
No provision being made as all the costs being transferred
to the lessee.
No provision being made as all the costs being transferred
to the lessee.
No provision being made as all the costs being transferred
to the lessee.
No provision being made as all the costs being transferred
to the lessee.
No provision being made as all the costs being transferred
to the lessee.
36
37. An Interview with RHB Islamic Officer
There is an information and experience gap between the shariah
people and the operational players.
Technically, there is no much different in accounting recording and
transaction for conventional hire purchase and Ijarah thummal bai
(AITAB) . The different between these two transactions are occurred
prior to accounting transaction to be happened, thus the final
recording will not much different from the conventional.
In the issue of pricing, majority of Islamic financing and banking
product are mirroring the conventional counterpart. This issue was
contributing a big chunk of problems to the Islamic banking and
finance industry.
37
41. Proposed All New AITAB
•Recording the asset in the bank Balance Sheet.
•Depreciating the asset by the Bank
•Bank bears all costs, risks and rewards related to the ownership
e.g. maintenance cost, regular services, spareparts
replacement, takaful contribution, road tax etc.
Full recognition of
ownership by the
Bank
•directly relates to the usage of asset e.g. fuel cost, car
wash etc.
•arise out of lessee’s negligence or mistake e.g. fine due
to speeding in high way.
Costs under
Lessee
responsibility
•adopting the principles of IMBT as much as possible in
its practice.
•Rental fee = costs + profit margin
•No benchmark to irrelevant interest rate.
It’s an operating
lease!
•Lessee will have the option to exercise or not
•If lessee does not want to own the vehicle, should
not create any problem since Bank has
professional capability of running car rental
business.
Transfer of
ownership on
unilateral promise
•Bank has right on outstanding rental fee up to the date of asset returned
•No further amount due related to expected profit or interest earned
•Part of the risk the bank to bear.
•With its rental operation capability, Bank can utilize the repossessed
asset and generate income from it.
Default -> Asset is
returned to the
Bank
ProblemswithAITAB
SOLUTIONS:BacktoOperatingLease
41
42. All New AITAB: Consequences, Pros & Cons
• Too large deviation?
• Abolishment of riba and loan based
transaction lead to wider role to be played
by Islamic banks (Universal Bank)
• How?
• division or subsidiary
• collaboration with professional car
rental, garage and takaful operator
Islamic Bank to
retain
capabilities of
professional car
rental company
• All new AITAB ≠ Conventional Hire-
Purchase
• Competition is irrelevant because All New
AITAB delivers more value added or
services
Less competitive
than conventional
hire purchase?
• Reckless use of the car?
• Can be reduced by:
• proper management and control
• Well-drafted contract
• Car will be owned by the Lessee
Less sense of
belonging
• Islamic concepts are different form
conventional
• Conventional regulation framework will not
suit Islamic financial institution
Regulatory Issue
AllNewAITAB
42
43. Conclusions
The core issue is recognition of asset. Under shariah compliant
leasing (Operating Ijarah and Ijarah Mumtahia BilTamleek),
Ijarah asset and expenses should be borne by the lessor (Bank).
Accounting treatments on Ijarah (AITAB) implemented by all
Malaysian banks have no difference from conventional hire-
purchase i.e. Banks do not recognize asset and expenses.
Therefore, the financial statements do not truly and fairly reflect
the Shariah rights and obligations of the parties.
To solve the problem, Islamic Banks need to revamp their Ijarah
product to be inline with Operating Ijarah or IBMT with all
consequences. However, regulatory framework needs also to be
reviewed to support this development.
43