1. Assessment on Shariah compliance
of current ijarah financing product
(AITAB) in the market

2. To pick current AITAB for car financing of Malaysian Islamic Banks

3. Ownership problem.
During lease period, the legal ownership remains with the lessor (Bank), not the lessee
(customer). Consequently, all burden on expenses and risk related to ownership should
be borne by the Bank. Those expenses/risks are including maintenance, road tax and
takaful contribution.

4. However, the practice of current AITAB is that all those
ownership related expenses/risks are borne by the lessee, who is
not the owner of the car or property during lease period
• AITAB and ijarah muntahiyyah bittamlik
• The issue of operational lease and financial
lease

5. In terms of accounting treatment, leased property is not recorded as asset on Bank
balance sheet, but on lessee balance sheet instead. This practice clearly against the
Shariah ruling. In other words there is a contradiction between Shariah ruling on
ownership under ijarah contract with the accounting treatment as the bank that own
the property does not recognize its ownership

6. Benchmarking with Interest rate.
• Islamic bank benchmark its rental fee with interest rate of conventional
leasing therefore they always copy-cat all aspects of conventional hire-
purchase practice
• Pg 286 ayub ‘the basic reason for inserting such conditions is that the
main concept behind the agreement is to give an interest-bearing loan
under the cover of lease.6

7. Issues of termination
• The issue of the termination of contract in which ‘the lessor is allowed to provide
in the lease contract that he will have a right to terminate the lease if the lessee
contravenes any term of the lease agreement. In that case, the lessee would be
obliged to pay the due rent and not the rent of the remaining period. Pg 286 ayub
• Repossession - risk as an owner, liabilities