58293101 Islamic Leasing Ijarah

Click here to load reader

  • date post

    11-Nov-2014
  • Category

    Documents

  • view

    119
  • download

    1

Embed Size (px)

description

ijarah

Transcript of 58293101 Islamic Leasing Ijarah

Focused toolkit Islamic Leasing (Ijarah) Table of ContentsWHAT IS ISLAMIC FINANCE?................................................................................................... 5 Shariah (Islamic Law)................................................................................................................. 6 Halal and Haram........................................................................................................................ 6 Takaful (Islamic Insurance)........................................................................................................ 6 Basic Principles of Islamic Finance............................................................................................ 7 Support Institutions for Islamic Finance................................................................................. 8 IJARAH (ISLAMIC LEASING)................................................................................................... 10 Introduction............................................................................................................................. 10 Terms and conditions of the Ijarah Contract.........................................................................12 Standard Features of Ijarah Contracts Offered by Financial Institutions.......................... 14 Example of Ijarah Financing Calculations............................................................................. 16 Comments on Differences and Similarities between Conventional Lease contracts and Ijarah.......................................................................................................17 Sale of the Leased Asset......................................................................................................... 18 Independence of Ownership................................................................................................. 18 Timing of Lease Payment........................................................................................ 18 Ijara of Non-existing Assets..................................................................................... 18 Period of Ijara........................................................................................................... 19 Determination of Rent............................................................................................. 19 Insurance and Maintenance Expenses................................................................... 19 Securitization of Assets Subject to Ijarah Contract............................................... 20 Legal Opinion Regarding Securitization................................................................ 20

Ijarah Transactional Issues................................................................................................. 20 AL-IJARAH THUMMA AL-BAI (AITAB).................................................................................. 21 Example of AITAB Financing Calculations............................................................................ 22 Documentation for AITAB...................................................................................................... 22 Comments on Differences Between Conventional Lease Contracts and AITAB.............. 23 Tax Benefits of AITAB............................................................................................................. 23 Legal Issues to Consider.......................................................................................................... 23 Examples of the Impact of Shariah Rulings in Four Countries .......................................... 24 Shariah Supervisory Board (DPS)........................................................................................... 27 Ijarah Transaction Examples................................................................................................... 28 Example of Car Leasing.......................................................................................................... 28 Ijarah Home Finance............................................................................................................... 30 Forward Ijarah (Real Estate Financing)................................................................................. 32 Islamic Leasing for Micro, Small, and Medium Enterprises (MSMEs)................................. 34 AAOFI....................................................................................................................................... 35 IFRS vs AAOIFI and the Malaysian Accountings Standards Board (MASB)........................ 35 Accounting under AAOIFI...................................................................................................... 36 Malaysian Accountings Standards Board (MASB)................................................................ 37 Accounting Treatment under AAOIFI................................................................................... 39 Classification and Recognition of Ijarah under AAOIFI20...................................... 39 FOUR MAIN SCHOOLS OF ISLAMIC THOUGHT: HANAFI/JAFARI, MALIKI, SHAFIE, AND HANBALI............................................................................................ 41 Sunni and Shia........................................................................................................................ 42 Ijarah Under the Four Schools................................................................................................ 42 Dispute Resolution.................................................................................................................. 43

PROJECT FINANCING USING IJARAH.................................................................................... 43 Ijarah with Istisna.................................................................................................................... 44 Risks to Avoid in Project Financing........................................................................................ 44 Project Financing Examples.................................................................................................... 45 IJARAH SUKUK........................................................................................................................ 46 Sukuk........................................................................................................................................ 46 Sukuk Trust Certificates............................................................................................. 47 Disadvantages of the Ijarah Sukuk Structure....................................................................... 48 Sukuk Trading Options .......................................................................................................... 48 Ijara and Project Finance........................................................................................... 49 Sample Transaction Structure Leasing Assets..................................................... 49 STANDARD & POORS RATINGS OF IJARAH SUKUK........................................................... 52 Ijarah Sukuk Ratings.................................................................................................. 52 Criteria Guidelines...................................................................................................... 54 ISLAMIC FINANCIAL SERVICES BOARD IFSB 9.0.................................................................. 57 Guiding Principles on Conduct of Business for Institutions Offering Islamic Financial Services........................................................................................................ 57 ISLAMIC FINANCIAL GLOSSARY........................................................................................... 58 References............................................................................................................................. 61 General Bibliography...................................................................................................... 63

4

Focused toolkit: Islamic Leasing (Ijarah)

Focused toolkit: Islamic Leasing (Ijarah)

5

WHAT IS ISLAMIC FINANCE?As a form of financial intermediation, Islamic finance incorporates several elements that guide the process of the mobilization and allocation of funds to generate productive economic activity and inclusive development. Fundamental to Islamic finance is the requirement that financial transactions must be supported by real economic activity. In addition, Islamic finance promotes profit sharing and hence risk sharing. These elements limit the extent of leverage and place emphasis on transparency and disclosure in the documentation of contracts. Embraced in its entirety, Islamic finance promises to enhance the discipline that contributes towards ensuring growth and financial stability. Dr. Zeti Akhtar Aziz, Governor, Bank Negara Malaysia 1

Unlike the segregation of duties and responsibilities that exists in the western, non-Muslim world, in the Muslim world there is no division between religion, business, the family, and the state. The values, morals, norms, behaviors, and ethics applicable in one situation permeate all the others, and this carries to the issues of finance. This construct binding the parts to create the whole is referred to as Shariah, which can be translated to mean the way, referring to the way Muslims should live. The way is well represented below in diagrammatic form in terms of its impact on financial issues. Source: Islamic Finance and Global Financial Stability, 20102

1

Please see end notes at the end of this focused toolkit

2

Please see end notes at the end of this focused toolkit

Overarching Principles Towards achieving the objectives of Shariah (Maqasid al-Shariah) Protection of religion, life, lineage, intellec