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Home | Personal Banking | Consumer Finance | Car Ijarah | Shariah Compliance

Car Ijarah

Shariah Compliance

 

 

Car Ijarah, designed under the supervision of Meezan Banks Shariah Supervisory Board, is unique to car leasing facilities provided by other banks. 

 

  • Rights & liabilities of Owner v/s User

An Islamic Ijarah is an asset-based contract, i.e. the Lessor should have ownership of the asset during the period of the contract. Under Islamic Shariah, all ownership related rights and liabilities should lie with the owner while all usage-related rights and liabilities should lie with the user. A conventional lease contract does not distinguish between the nature of these liabilities and places all liabilities on the user of the asset, which is contradictory to Islamic Shariah.

Under Ijarah, all ownership-related risks lie with the Bank while all usage related risks lie with the user, thus making the Lessor the true owner of the asset and making the income generated through the contract permissible (Halal) for the Bank.

 

  • Continuation of lease rentals in case of total loss or theft of vehicle

If the leased vehicle is stolen or completely destroyed, the conventional leasing company continues charging the lease rent till the settlement of the Insurance claim. Under the Islamic system, rent is consideration for usage of the leased asset, and if the asset has been stolen or destroyed, the concept of rental becomes void. As such, in the above-mentioned eventualities, Meezan bank does not charge the lease rental.

 

Legally (in accordance to Pakistan’s Law and Regulations), it is required for all leasing entities to insure the leased assets. As such, Meezan Bank insures its leased assets. Meezan Bank insured its assets through Takaful only, which is the Islamic product for insurance.

 

  • Permissibility for Penalty of Late Payment of Rent under Islamic Shariah

In most contemporary financial leases, an extra monetary amount is charged, in their income, if the rent is not paid on time. This extra amount is the considered as Riba and is Haram. Under Ijarah, the Lessee may be asked to undertake, that if he fails to pay rent on its due date, he will pay certain amount to a charity, which will be administered through the Islamic Bank. For this purpose the bank maintains a charity fund where such amounts may be credited and disbursed for charitable purpose.

 

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