Ijarah Contracts Used By Islamic Financial Institutions

Ijarah Contracts Used By Islamic Financial Institutions Essay example
Ph.D.
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Finance & Accounting
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Islamic Accounting Table of Contents 1. Introduction 2. Types of Ijarah Contracts Used By Islamic Financial Institutions 2.1 Simple Ijarah (similar to an Operating Lease) 2.2 Ijarah Muntahia Bittamleek (similar to a Financing Lease) 2.3 Ijarah Mausufah Fi Zhimmah (A Forward Lease) 3…

Introduction

It assists in strengthening the financial system of the country. The stronger the economy the stronger the country is. There are two kinds of banking systems and they are Islamic banking and the Conventional banking. Islamic banking is significantly different from conventional banking, and some of the differences are discussed in this essay. This report talks about an important feature in banking system i.e. lease. In conventional banks, it is referred to as conventional lease; and in Islamic bank, the lease is known as Ijarah. “Ijarah derives from the root word ajar a – to recompense, compensate or give a consideration and return. Ajr refers to a worker’s wage, and ujra h to rental payment.” (Kamali n.d.). Ijarah is a Shariah compliant alternative to Conventional lease. Through these two kinds of lease, bank performs as a Lessor and the individual to whom the asset is leased acts as a Lessee. The bank insists the lessee to pay an amount monthly for the use of the asset. The rights of the asset remains with the bank, and only the privileges of use are transferred to the lessee. 2. Types of Ijarah Contracts Used By Islamic Financial Institutions: 2.1 Simple Ijarah (similar to an Operating Lease) In a business world marred by financial uncertainties and increasing costs of operations, Ijarah loans are broadly considered as the safest, easiest, and the most efficient means to finance production procedures. ...
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