3. 3
IJARAH
• Transferring of usufruct of an asset to another
person for an agreed period, at an agreed
consideration.
• It is used to express the sale (bay’) of a known
benefit in return for its known equivalent.
• The Asset should be valuable and identified
and has a usufruct.
• Anything which cannot be used without
consuming cannot be leased out. e.g.. Money,
Wheat etc.

4. • Quran:
IJARAH
LEGITIMACY
4

5. IJARAH
BASED ON SUBJECT
MATTER
TANGIBLE ASSET
LABOUR
DESCRIPTION OF
ASSET
BASED ON
CONTRACTUAL
RELATIONSHIP
OPERATING IJARAH
FINANCIAL IJARAH
TYPES OF IJARAH
5

6. TYPES OF IJARAH
1. Operating Ijarah
Operating Ijarah is a lease that does not include a
promise that the legal title in the leased asset will
pass to the lessee at the end of the lease.
BANK
CUSTOMER
BANK

7. 2. Financial Ijarah (Ijarah Muntahia Bittamleek )
It is a contract that concludes with the legal title in the
asset passing to the lessee after Ijarah.
IT MAY CONCLUDE:
 Through Hiba (Gift).
 Through Salvage Value.
 Through Pre Decided Price if,
During the Lease Period.
TYPES OF IJARAH

8. TYPES OF IJARAH

9. 3. IJARAH TUL MUSHA OR JOINT OWNERSHIP IJARAH
It is a lease where Bank & Customer jointly owned the
leased asset. Bank gives its share to the customer on
lease.
After the term of Ijarah, the treatment is similar to
Ijarah Muntahia Bittamleek.
TYPES OF IJARAH

10. 10
BASIC RULES OF IJARA
• Ownership Expenses
• All Liabilities of ownership e.g. Takaful, Registration
cost etc are borne by Lessor because corpus of leased
property remains in the ownership of the seller.
• Period of Lease
Must be determined in clear terms at the time of
contract.
• Lease for Specific Purpose Only
If no specific purpose is identified in the agreement,
then it can be used for any purpose for which it is
used in normal course.

11. 11
BASIC RULES OF IJARA
• Lessee as Ameen
The lessee is liable to compensate the Lessor for every
harm to the leased asset caused by any misuse or
negligence. The leased asset shall remain in the risk of
the Lessor throughout the lease period.
• Lease Of Jointly Owned Property
It is permitted and rentals shall be distributed
between all the joint owners according to the
proportion of their respective shares in the property.

12. 12
Determination of Rental
• The rentals must be determined at the time of contract for
the whole period of lease.
It is permissible that different amounts of rent are fixed for
different phases during the lease period, provided that:
1. The amount of rent for each phase is specifically
agreed upon.
2. Floor & Cap is decided to eliminate Gharar.
The determination of rental on the basis of the aggregate
cost incurred in the purchase of the asset by the Lessor, as
normally done in financial leases, is not against the rules
of Shariah

13. 13
Determination of Rental
The Lessor cannot increase the rent unilaterally,
and any agreement to this effect is void.
The rent or any part thereof may be payable in
advance after execution of lease agreement.
The lease period shall commence from the date
on which the leased asset has been delivered to
the lessee.

14. 14
Rent Charging
Rent should be charged after the delivery of
the leased asset to the lessee
and not from the day the price has been
paid. If the supplier has delayed the delivery
after receiving the full price, the lessee
should not be liable for the rent of the period
of delay.

15. 15
Charity For Late Payment Of Rent
The Lessor cannot charge an additional amount
in case the lessee delays payment of the rent but
an amount on account of charity can be
charged.
Charity received on late payments is given
to charitable institutions by the bank on
behalf of the customer.

16. 16
Termination of Lease
. If the lessee contravenes any term of the agreement,
the Lessor has a right to terminate the lease contract
unilaterally.
In normal scenarios Ijarah can be terminated through
mutual consent only. However, in such a case the
Lessor cannot charge rentals of remaining period.
Ijarah is also terminated on maturity of the lease
period.

17. 17
Transfer of Ownership
It is a well-settled rule of Islamic jurisprudence that
one transaction cannot be tied up with another
transaction so as to make the former a pre-condition
for the other.
However, the Lessor may enter into a unilateral
undertaking to sell the leased asset to the lessee at the
end of the lease period. This undertaking will be
binding on the Lessor only.
The Lessor can also take “undertaking to purchase”
from the customer binding him to purchase the asset
during facility period or at maturity.

18. 18
Transfer of Ownership
. Ijarah Wa Iqtina
The Lessor may sign a separate promise to gift the
leased asset to the lessee at the end of the lease
period, subject to his payment of all amounts of rent.
. Sub-Lease
If the leased asset is used differently by different
users, the lessee cannot sub-lease the leased asset
except with the express permission of the Lessor.

19. 19
• The customer approaches the Bank with the request
for financing
• The Bank purchases the item required for leasing and
receives title of ownership from the vendor
• The Bank makes payment to the vendor
GENERAL MECHANICS
CUSTOMERISLAMIC BANKVENDOR
. .
Agreement

20. 20
• The Bank leases the asset to the customer
• The customer makes periodic payments as per
the contract
• The asset title transfers to the customer based
on the method disclosed in the agreement
GENERAL MECHANICS
CUSTOMERISLAMIC BANK Agreement
VENDOR
. .

21. 21
Ijarah VS Conventional Lease.
• Rent can only be charged
after delivery of leased
assets.
• Charity of late payment of
rental is given to charity.
• Transfer of asset at the end
of lease period to lessee is
not included in the lease
agreement.
• All risks and rewards of
assets will be held with
bank.
• Rent charged from the days
the price has been paid even if
delivery is delayed.
• Penalty of Late payment of
rental is taken into Income.
• Transfer of asset at the end of
lease period to lessee is a part
of the lease agreement.
• All risks and rewards of assets
transferred to lessee.
Ijarah Conventional Lease

22. APPLICATION OF ACCOUNTING STANDARD
The Islamic Financial Accounting Standard (IFAS)-2 “
IJARAH” was issued by the Institute of Chartered
Accountants of Pakistan (ICAP) and was adopted by the
Securities and Exchange Commission of Pakistan (SECP)
vide its notification S.R.O 431 (i)/2007 dated May
22,2007.
Effective Date
IFAS-2 has become operative for financial statements
covering periods beginning on or after July 01, 2007.

23. Sale & Lease Back
• Sale & Lease back is such a transaction in which a customer sells
his already possessed asset to a financier and then enters into a
separate lease agreement to get the right of use over a certain
period.
• Ideally SLB transactions should be avoided. It should be used in
exceptional cases and care should be taken to ensure that the
transaction is genuine and not merely a source of liquidity
/overdraft facility or a substitute of personal financing.
• Sale and Lease Back may be allowed in following cases:
A. Financing of Newly Imported Asset ( machinery,
equipment etc)
B. Replacement from Conventional to Islamic Financing
23

24. 24
Ijarah Risks & Its Mitigates
• Theft or Damage of
• Leased Assets
• Delayed in Rental
Payment
• Doubtful Customers
• Through Takaful
Arrangement
• Charity for Late
Payment
• Through Know Your
Customer Analysis
RISKS MITIGATES

26. DIMINISHING MUSHARAKAH
MUSHARAKAH
“Shirkah” means “Sharing” and in the
terminology of Islamic Fiqh;
Musharakah is basically a kind of partnership
in which the partners join together with
different contributions for the common
objective of joint ownership or undertaking
business and trade in accordance with the
principles of Shariah.

27. What is Diminishing Musharakah?
Diminishing Musharakah is just
Musharakah with an additional feature of
decreasing ownership of one partner.
In this type of Musharakah the ratio of
ownership keeps changing.
The closest term in conventional finance
for DM is Redeemable Capital.

28. Types of Diminishing Musharakah
Like the normal Musharakah, this is
also distributed into two categories:
I. Shirkat ul Aqd
For the purpose of Business
II. Shirkat ul Milk
For the Purpose of Joint Ownership

29. Basic features of
Diminishing Musharakah
●● Creation of partnership.
●● Implementing the relevant Rules of
Musharakah.
●● Renting one Partner’s Share to the
Other.
●● Redemption of one partner’s share
by purchasing from another.

30. BASIC OPERATION

31. BANK CUSTOMER
JOINT
OWNERS
HIP
RENT
•The customer approaches the Bank with the request for project /
machinery / house finance.
•The Bank enters into a Musharakah (Joint Ownership Agreement)
with the Customer and both of them pay their respective shares to
the seller of asset.
•The Bank gives its share to the client on rent and client pays the rent
to the bank against use of the bank’s Share.
• The Client promises to purchase Bank’s share (Units) over the
tenure of the transaction with the help of Undertaking to Purchase.
BASIC OPERATION

32. »» There should be a real partnership.
»» Every partner should enjoy the benefits and bear the
responsibilities.
»» The promise of sell / buy should be obtained through
a separate document.
»» In case of Shirkat ul Aqd, redemption will be on
market price or negotiated price or on N.A.V bases,
not on any pre decided price.
»» Proper documentation should be made.
Conditions To Be Fulfilled

33. Diminishing of Shirkat ul Aqd
A and B invest their capital and create a joint venture.
A separate Musharakah agreement is executed.
B promises to sell his shares to A gradually or A
promises to buy B’s shares.
A and B enjoy their rights as partners as they share the
revenue in agreed ratio and bear the loss according to their
shares in capital.
A will keep buying B’s shares until he acquires the complete
ownership.

34. Diminishing of Shirkat ul Aqd

35. Diminishing of Shirkat ul Milk
A joint ownership is created between A and B
in any property or any asset which is not a
subject matter of any business.
A promises to buy B’s shares gradually on an
agreed price.
A may take B’s shares on rent.
A will purchase the shares of B at different
stages.
The rental will be adjusted according the
remaining shares of B.

36. DIMINISHING MUSHARAKAH
Accruing Rentals
Share in
capital
Share in
capital
Partner Bank
2
3
Sell its
share in
equity
Pays price of
the units of
bank’s equity
1 1
4

37. Uses of Diminishing Musharakah
Project financing of fixed assets
Agriculture Finance
Plant and Machinery Finance
House finance
Car / Transport finance

38. Shariah Principles
• To create joint ownership in property is called
Shirkat-ul-Milk and is expressly allowed by all
schools of Islamic Jurisprudence.
• All Muslim Jurists agree on the permissibility of the
Financier leasing his share in property to client and
charging him rent i.e. the permissibility of leasing
one’s share to his partner.
• There is difference of opinion among leasing one’s
share to a third party But there is no difference on
permissibility on leasing to a the co owner.

39. Shariah Principles
• Promise of client to purchase units of share of
financier is also allowed.
• The Transactions cannot be combined in a single
arrangements and they have to be executed
independently. This is because it is a well settled
rule of Islamic Jurisprudence that one transaction
cannot be made a condition for another.
• Instead of making the transactions a pre-condition
for one another there can be one-sided promises
from one party to another.

40. CASE STUDY
• MEEZAN EASY HOME
Features:
• Flexible Financing Tenure 3 to 20 years.
• Highest financing amounts up to PKR 40 Mln.
• BIR up to 85% of property value.
• Flexibility to make additional unit purchase.
• Minimal processing charges.
• Very affordable and competitive monthly payment
plan with a regularly reducing rental amount.

41. Product Range
• Easy Home Offers a Comprehensive solution with:
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• Easy Renovate - Renovating a home is Easy & Halal
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mortgage is Easy & Halal

43. ‫ا‬ً‫کر‬ُ‫ش‬