Car Ijarah
Car Ijarah
Car Ijarah
SUBMITTED TO
SUBMITTED BY
MISBAH JAMIL E18MBA048
IRUM MALIK E18MBA017
MBA BANKING & FINANCE
SEMESTER 6TH
DATED 10/15/2021
ISLAMIC AUTO FINANCE
Islamic vehicle finance is the type of financing which is based upon the model of
profit and risk sharing, in which both the bank and customer agree to share the risk as
well. It totally prohibits Riba, which is the base of the conventional banking products.
Is Auto finance allowed in Islam?
In other words, a bank or individual cannot charge interest (known as 'Riba' in Arabic)
when lending money. Renting an asset is permissible, but renting money is strictly
prohibited in Islam. This means that many traditional forms of car finance are not
considered halal and consequently are not allowed.
Components in AITAB
There are two types of contracts involved which is Ijarah and Al-Bay’. Let’s first
differentiate their components:
Rental of Lease:
The lessor cannot increase the rent unilaterally, and any agreement to this effect is void.
Example
Car Ijarah is Meezan Bank's car financing product and is Pakistan's first Interest-free
car financing. It is based on the Islamic financing mode of Ijarah (leasing). This product
is ideal for individuals who want to get interest-free financing for acquiring locally
manufactured /assembled vehicles.
Car Ijara works through a car rental agreement, under which bank purchases the car
and rent it out to the customer for the period of 1-5 years, agreed at the time of contract.
Upon completion of Ijara period, the vehicle will be sold at token amount or gifted to
customer.
Under Diminishing Musharakah financing, the Bank and its client participate in the
ownership of an asset on the basis of ‘Shirkat-ul-Milk’ (i.e. Joint ownership)
A DM based Auto financing transaction comprises of mainly following three steps:
All the three transactions are independent and are executed through separate contracts.