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First of all we are thankful to

Almighty ALLAH who gave us the ability to complete this task and we would like to

dedicate this presentation to Almighty ALLAH

DEDICATION

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Group Members

Roll Number

Absar Zia 0024Waqas Saleem

0005

Sajid Mehmood

0028

Usman Quddus

0025

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• My topic is What is Ijarah?

• Waqas Saleem topic is What is Lease?

• Usman Quddus topic is Different b/w Ijarah & Lease.

• Sajid Mehmood topic is working of both Lease & Ijarah

Work Division

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Definition of Ijarah:

• Literally means:

To give something on rent.

• It is defined as:

‘to transfer the usage of a non-consumable asset by the owner (the lessor) to another person (the lessee) for an agreed period, at an agreed price (rent).’

Ijarah {Islamic Leasing}

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• Transferring of usufruct not ownership

Basic Rules of Ijarah

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• Subject of lessee

(Should be valuable, identified and quantified)

• All consumable things cannot be leased out.

(For example money, wheat etc.)

• All liabilities of ownership is borne by lessor

• Period of lease

Basic Rules of Ijarah

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• Lease for specific purpose

(The lessee cannot use the leased asset for any purpose other than the purpose specified in the lease agreement.)

• Ijara payments cannot be assigned to third party.

• In case late payment

Penalty Charity Account

Basic Rules of Ijarah

• Lessee as Ameen

(The lessee is liable to compensate the lessor for every harm to the leased asset caused by any misuse or negligence)

• Determination of Rental Must be determined

Variable Rentals in Long Term Leases

Lessor has right to change

Both parties

Basic Rules of Ijarah

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• Rent should be charged after the delivery of the leased asset

• Repairs & maintenance are the responsibility of lessor.

• Ijara payments should be stopped if asset is out of order.

• No hidden registration / tax related expenses and fees

• No hidden takaful (Insurance) payment

Basic Rules of Ijarah

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• Processing fee

• Takaful (Insurance)

• In case of Accident

• After maturity HIBA to customer

Basic Rules of Ijarah

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Waqas Saleem

Welcome to next

Presenter

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• When we go for lease?Unavailability of Financial Resources

• How many parties are Involved?Lessor

The owner of the assets that are being used

Lessee The receiver of the assets under a

lease contract

LEASE

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• Operating Lease

• Financial Lease

TYPES OF LEASE

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A contract by which one party conveys land, property, services to

another for a specified time, usually in return for

a periodic financial benefits.

OPERATING LEASE

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A contract by which one party conveys commodities

like cars and machinery etc. to another for a

predefine time, usually in return for a interest.

FINANCIAL LEASE

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• Direct Lease• In this type of financial lease the

bank purchases the commodity and then transfer to the customer on lease for consideration.

• Sale and Lease Back• In this type of financial lease the

customer purchases the commodity and then let it on lease from the bank for consideration.

TYPES OF FINANCIAL LEASE

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• Customer capable or not?

• Demand six month balance statement.

• Monthly salary 3 times of installment.

• CIB Report

• Dead Burden Calculation

• Salary in Account along with Pay Slip

• Registration on the name of bank

DIRECT LEASE

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• Insurance in Advance

• Minimum down payment

• Pay Mark-Up

• Bank Charges

• Registration Fee/Charges

• Freight Charges

• Colour Demand

• Availability of Car

Cont’d.....

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• Two passport size photograph

• Copy of CNIC

• Bank Statement for the last six months

• Salary certificate (for a salaried individual)

• Business proof (for a business person)

• NTN Certificate

DOCUMENTS REQUIRED

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• Quotation & Documents

• Evaluation

• Same process as for direct lease

SALE AND LEASE BACK

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• Quickest Processing

• No Hidden Charges

• Complete Repayment at any point of time

• Balance Transfer Facility for existing as well as new clients from other banks

• Tenure period ranging from 1 to 5 years

• Financing of all brands new locally assembled vehicles and used cars.

• Financing Limit ranging b/w Rs 2 Lac to 20 Lac for Brand new cars

FEATURES OF LEASE

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Usman Quddus

Welcome to next Presenter

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Where as in IJARAH (Islamic lease) rent should be charged after the delivery of asset.

IjarahIn conventional lease agreement the lease commences on the very next day on which the price is paid by the lessor whether the lesee has taken the delivery of the assets or not

Lease

Commencement of Lease

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• In Ijarah lessor is the owner of the assets therefor he bear all the expenses incurred on the purchase of assets and include them in the cost of assets

• In convential lease the lessor does not bear all the expenses incurred on the purchase of assets e.g. freight charges, custom duty etc.

EXPENSE CONSEQUENTT TO OWNERSHIP

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• In Ijarah the lessee is responsible fro the losses caused by hi negligence. But he will not be held responsible for the losses caused by those facotr beyond the lessee’s controll.

• In convential lease the lessee is responsible for any kind of loss to the assets whether controllable or uncontrollable loss, lessor will not compensate the lesee for any loss.

Liabilities of the parties in case of loss

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Variable Rentals in Long Term LeaseThe rental 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 the amount of rent for each phase is specifically agreed upon at the time of effecting a lease. 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.

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The lessor cannot increase the rent unilaterally, and any agreement to this effect is void.

Rental will be charged when the Leased asset is handed over to the lessee.

• Leasing should not be interest-based loan or replacing interest with rent, rather it should comply with all of the following conditions of Islamic leasing:

Cont…

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• But in case of Islamic Lease penalty on late payment will be charged but given to some charity account and in no case it will be a part of lessors income.

• In Conventional lease if the lessee makes late payment then penalty will be charged and added to lessors account that is not allowed in shariah

Penalty For Late Payment Of Rent

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• In islamic lease if the lessee vilate aby term of the agreement the lessor has the right to terminate the lease contract. If no violation on the part of lessee the lessor cant terminate the contract.

• In conventional lease if lesse violate any term of the agreement then lessor can terminate the lease agreement but if no violation on the part of lessee even then lessor can terminate the lease agreement.

Termination of Lease

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• In Islamic lease as the asset is the sole property of the lessor and after the expiry of leased period the lessor is at liberty to renew the lease agreement or take the asset back and lease it out to another party or sell it to the lessee

• Lessee cant force the lessor to sell the asset to him nor such condition can be imposed on the lessor in the lease agreement.

• At the expiry of conventional lease the leased asset is normally transferred to the lessee because the lessor has recovers his cost along with an additional profit.

• Asset is transferred free of cost or nominal token price

Residual Value Of leased Assets

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Sajid Mehmood

Welcome to next Presenter

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Means:

RENT

APPLICABLE:

For both Property and Equipment

Ijara-wa-Iqtina is a straightforward Sharia method meaning rent with an acquisition or a rent-to-own process.

IJARAH also known as Lease-to-Own

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• The investor earns profit on the initial Ijara amount financed by the customer through monthly rental payments. Standard amortization calculations, acceptable because there are no Sharia issues with mathematical formulas, are used to determine specific monthly payments.

• The Ijara transaction is formulated on a reverse amortization calculation setting it apart from a conventional mortgage amortization.

HOW MONTHLY IJARA RENT PAYMENTS ARE CALCULATED

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HOW A PERCENTAGE WORKS

• Rather than contradicting Sharia, using percentages to explain the gain made on an Islamic transaction is acceptable. Measuring the benefit as a percentage in an Ijara transaction is best explained in the following example:

•             • Assume you have cash in the amount of

RS.10,00,000• You apply this cash toward the purchase of a

Home• You charge a tenant Rs.5000 monthly to rent

the property• At year's end, rental payments of Rs.5000

collected over 12 months total Rs.60,000• Total rent of Rs.60,000 represents a return of

6% on your initial investment of RS.10,00,000

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Cont..If you are wondering whether the 6%

represents Riba or Rent, the obvious answer is Rent because the percentage results from a business agreement.

Let's compare this to a conventional mortgage interest undertaking:

• Starting out with the equivalent amount of cash being Rs.100,0000

• You transfer this cash amount to someone

• They use these funds to buy the identical home

• In order to use these funds, they allocate an equal Rs.5000 monthly payment to you representing 6% per year

• This formula basically means rent on the funds

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Cont..• In the latter instance, the 6%

represents rent on funds or Riba. Therefore, using a percent to describe the profit gained from an Islamic Ijarah transaction is acceptable from a Sharia viewpoint. In addition, the Truth in Lending Act/Consumer Protection Act requires any profit gained from a residential realty transaction must be set out as a percentage so the customer can evaluate the total cost of the financial transaction.

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Sharing either a loss or gain in a financial transaction is a fundamental principle of Sharia compliance. As a result, the Ijarah undertaking is set up to reflect the entire gain or 100% rightfully belongs to the customer. Under Shariah, parties share loss or gain in a transaction based on their percentage of ownership. Abiding by this doctrine and at the time of realization of loss or gain, the Ijarah transaction recognizes the customer as the only property owner.

SHARING A LOSS OR GAIN

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Procedural steps undertaken at the time of the sale will include:

• transferring title to the property from the Trust to the customer,

• transferring title from the customer to the purchaser,

• settling the transaction with the purchaser pursuant to the terms of the agreement with the customer,

• Lastly, allowing the customer to conclude with the trust pursuant to the terms of the arrangement (or the Ijara documents) between the customer and the trust. 

Cont..

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Cont..

• Creating a scenario in which the customer holds 100% title to the property even briefly, the aforementioned procedural steps entitle the customer to benefit from the dissimilarity between the two agreements; one being the initial promise to purchase arrangement with the trust, and the other being the sale to the purchaser.

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• Complete application

• Six month bank statement, sing. & stamp

• Signature verification

• Copy of NIC & 2 reference NIC copies

• Two passport size photographs

• Copy of valid driving license

• Copy of utility bills

• Letter head of business

• Salary slip

• Processing charger Rs. 3000

Car Ijarah Requirement

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• Bank not take insurance in down payment

• Registration and delivery charges will be paid by bank at time of delivery but recovered after month later in first month.

• Customer age should not more than 65 year at maturity

• Rent will be started after one month delivery of vehicle

Term and condition

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If Less than 1 million

• Process charges 4000 PKR

If greater than one million

• Process charges 5000 PKR

Process & valuation charges for new car (domestic)

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If les s than 1 million• Process Charges 3000 PKR

• Valuation Charges 1500 PKR

If between than 1 million to 1.5 million

Process Charges 4000 PKR

Valuation Charges 1500 PKR

If greater than 1.5 million

Processing charges remain same

Actual valuation charges charge

Process & valuation charges for used car (domestic)

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If less than 1 million

• process charges 4000 PKR

Out station verification charges

• 500 to 1000 depend upon distance

Process & valuation charges of (commercial vehicle)

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• Suzuki

• Honda

• Toyota

• Nissan

• Hyundai

• Mitsubishi

Car offering by Meezan bank

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• Mehran VXS• Mehran CNG• Mehran CNG AC• Alto VXP• Alto VXP AC• Alto CNG & AC• Cultus • Cultus CNG & AC• Liana• AVP CNG 1.5• Jimny• Bolan• Ravi• Swift

Suzuki Product offering by Meezan Bank

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Hyundai Product• Honda Civic VTEC

• Honda Civic VTEC Prosmatic

• Honda Civic VTI

• Honda City VTI

• Honda City I-VTE CVT 1.3L

• Honda Accord

• Honda CPV (4WD)

Honda Product

Products

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• SUNNY S/Saloon 1600 cc M/T

• SUNNY EXS 1300 cc M/T

• SUNNY EXS 1300 cc A/T

• SUNNY EXS 1600 cc M/T

• Sunny EXS 1600 cc A/T

• CERIFO 2300 cc A/T

• XTRAIL (LE-6F) 2200 cc Diesel

• XTRAIL (SLX-6F) 2200cc Diesel

• XTRAIL (LE-5F) 2500 cc Petrol M/T

• XTRAIL (SLX) 2500 cc Petrol A/T

• PATROL TD42 SGL Grade Diesel M/T

NISSAN Product By Meezan Bank

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Calculation

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• The second hand car selected should not be more then twice registered.

• The vehicle should not be older than 5 years.

• The minimum security deposit for a vehicle up to 2 years of age is 20%, while minimum security deposit for a vehicle over 2 years of age is 30%.

• At the time of maturity of Ijarah agreement, the vehicle should not be more than 8 years old. This means that if a car is 5 years old, the Car Ijarah tenure is not more than 3 years and if its 4 years old, the tenure may be set for a maximum 4-year term.

• Second hand vehicles selected should not be worth more than Rs. 1.5 million and less than Rs. 250,000/-. Meezan Bank will have the vehicle valued by an independent valuation company accordingly.

TERM AND CONDITION (FOR OLD CAR)

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CALCULATION

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• Scenario 1: Find the Monthly Payment

• Top of Form

• Loan Amount (C): 

• Residual Value (F): 

• Interest Rate % (R): 

• Number of Months (N): 

• Monthly Payment (P): 

• Bottom of Form

• The primary reason that leasing generally yields lower monthly payments is that although you are still paying the interest based on the full amount of the loan, the capital parts of the payments only have to add up to the difference between the loan and the Residual Value. With r = R/1200, the following formula calculates the monthly payment and can be reduced to the Loan Calculator formula when F = 0

Lease working

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• Scenario 2: Find the Interest Rate

• Top of Form

• Loan Amount (C): 

• Residual Value (F): 

• Monthly Payment (P): 

• Number of Months (N): 

• Interest Rate % (R): 

• Bottom of Form

• For given C, P and N, one can only solve the following equation for r by numerical means.

• Given the rather smooth behavior of this equation, this calculator employs the Newton-Raphson method with an educated initial guess:

Cont…

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Thanxx to All of You……