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P1: OTA c01 JWBK501-Kettell
May 30, 2011
12:46
Printer: Yet to come
1
Case Study 1: Ijara Contract
1.1 LEARNING OUTCOMES
After working through Case Study 1 you should be able to do the following:
PY
R
IG
HT
ED
MA
TE
RI
AL
r Define the Ijara contract. r Define the Ijara wa Iqtina contract. r Distinguish a conventional loan from Ijara. r Describe the elements of an Ijara transaction. r Contrast Ijara with the other modes of Islamic finance. r Identify the reasoning behind the Sharia’a rulings on Ijara. r Describe the different forms of Ijara. r Explain the practicalities of implementing Ijara. r Identify the Arabic terminology used in Ijara. r Describe the Sharia’a rulings on Ijara. r Contrast conventional leasing with Islamic leasing. r Explain the role that interest can play within an Ijara transaction. r Identify problems associated with applying Ijara. r Explain the importance of deferred sales within Islamic finance. r Contrast the role of penalty defaults within conventional and Islamic finance. r Explain how Ijara can be used for home finance. r Define LIBOR and explain its application with an Ijara contract. r Identify the deferred sale versus profit and loss share contracts. r Test that you have fully understood the principles that underlie the Ijara contract.
1.2 ROLE OF IJARA IN ISLAMIC FINANCE
CO
Those who take riba (usury or interest) will not stand but as stands the one whom the demon has driven crazy by his touch.
Qur’an Sura 2: 275–280
Case Abstract
Ijara is an Arabic term, with origins in Islamic Fiqh, meaning to give something to rent.
Leasing is a contract whereby usufruct rights to an asset are transferred by the owner, known as the lessor, to another person, known as the lessee, at an agreed-upon price, called the rent, and for an agreed-upon period of time, called the term of the lease. This case study describes the rationale and application of the Ijara financing technique.
May 30, 2011
12:46
Printer: Yet to come
1
Case Study 1: Ijara Contract
1.1 LEARNING OUTCOMES
After working through Case Study 1 you should be able to do the following:
PY
R
IG
HT
ED
MA
TE
RI
AL
r Define the Ijara contract. r Define the Ijara wa Iqtina contract. r Distinguish a conventional loan from Ijara. r Describe the elements of an Ijara transaction. r Contrast Ijara with the other modes of Islamic finance. r Identify the reasoning behind the Sharia’a rulings on Ijara. r Describe the different forms of Ijara. r Explain the practicalities of implementing Ijara. r Identify the Arabic terminology used in Ijara. r Describe the Sharia’a rulings on Ijara. r Contrast conventional leasing with Islamic leasing. r Explain the role that interest can play within an Ijara transaction. r Identify problems associated with applying Ijara. r Explain the importance of deferred sales within Islamic finance. r Contrast the role of penalty defaults within conventional and Islamic finance. r Explain how Ijara can be used for home finance. r Define LIBOR and explain its application with an Ijara contract. r Identify the deferred sale versus profit and loss share contracts. r Test that you have fully understood the principles that underlie the Ijara contract.
1.2 ROLE OF IJARA IN ISLAMIC FINANCE
CO
Those who take riba (usury or interest) will not stand but as stands the one whom the demon has driven crazy by his touch.
Qur’an Sura 2: 275–280
Case Abstract
Ijara is an Arabic term, with origins in Islamic Fiqh, meaning to give something to rent.
Leasing is a contract whereby usufruct rights to an asset are transferred by the owner, known as the lessor, to another person, known as the lessee, at an agreed-upon price, called the rent, and for an agreed-upon period of time, called the term of the lease. This case study describes the rationale and application of the Ijara financing technique.