According to Shariah, 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.
An Islamic Ijarah is an asset backed contract i.e. the lessor should have ownership of the asset before the Ijarah contract comes into effect. Under Shariah, all ownership related rights and liabilities should lie with the owner while all usage related rights and liabilities should lie with the user.
In Islamic jurisprudence, one transaction cannot be tied up with another transaction so as to make the former a pre condition for the other. Contemporary scholars have said that the Ijarah agreement itself should not contain a condition of sale /gift at the end of the Lease period; However, the lessor may enter into a unilateral promise to sell the leased asset to the lessee at the end of the lease period. This promise will be binding on the lessor only. The lessee is not bound to purchase the asset. However, if the lessee decides to purchase the asset, the lessor cannot refuse as he is bound by his promise.
In conventional financial lease, if rent is not paid on time, an extra amount is charged by the lessor, who pockets this as part of his income. This falls under the category of interest, which is prohibited in Islam. Under Ijarah, the customers undertakes to pay Charity in case he continuously fails to pay the rent on time. The amount of Charity is decided by the Shariah Supervisory board of BankIslami. Under no circumstances can this Charity can become part of the lessor's income.
This is similar to loss or theft of the asset. If the leased asset has totally lost the function for which it was leased, and no repair is possible, BankIslami is bound to terminate the lease on the day on which such loss has been caused. However, if the loss is caused by misuse or negligence on part of the lessee, he will be liable to compensate the bank for the market value of the asset, as it was immediately prior to the loss.
It is a legal requirement that every banking institution get all of its assets insured, and up until recently, there were no alternatives for Islamic banks other than to get its assets insured by conventional insurance companies. AlHamdulillah in recent years however, Shariah compliant insurance companies such as Pak Kuwait Takaful and Takaful Pakistan have opened up, allowing Islamic banks to get their assets insured using Islamic means. BankIslami has arranged to have all of its vehicles insured under takaful, the Islamic substitute of insurance.
BankIslami is an Islamic Bank and adheres to the principles of Shariah in all its transactions. The following are the differences between Conventional lease & Auto Ijarah.
Lease commences the very day on which the price is paid by the Bank, whether the Customer has taken the delivery or not
At BankIslami, rentals start after the delivery of asset, not from the day the price has been paid by BankIslami
Expenses incurred in the process of purchase of asset are paid by the Customer
BankIslami is the owner of the asset therefore it is liable to pay all expenses incurred in the process of its purchase
Lease does not differentiate between wear & tear or losses caused by the negligence of Customer and Customer is liable for cost incurred due to natural disasters
The Customer is responsible only for misuse and negligence, but not for events beyond control. In Auto Ijarah, each situation is treated separately
Penalty charges are taken from Customer on late payment. They are taken as income by the Bank
If the Customer fails to pay rental on due date, a certain amount will be taken from the Customer and given to charity by BankIslami
In a lease agreement it has been noticed that unrestricted power has been given to Bank to terminate the lease unilaterally whenever it wishes
If the Customer breaks any term of the agreement, BankIslami has a right to terminate Auto Ijarah unilaterally. However, if there is no contravention at Customer’s end Auto Ijarah cannot be terminated without mutual consent