• Home
  • Finance
    • Financial Management
    • Strategic Management
    • Investment Analysis and Portfolio Management
    • Project Management
    • Islamic Banking & Finance
    • Auditing
  • Marketing
    • Principle of Marketing
    • Marketing Management
    • International Marketing
    • Advertising & Promotion
    • Commercial Challenges
  • HRM
    • Human Resource Management
    • Principles of Management
    • Training & Development
    • Employee Performance Management
  • Others
    • Introduction to Business
    • Business Communication
    • Banking & Finance
    • Entrepreneurship
    • Economics
  • Personal Skills
  • Tips & Tricks
  • About Us
    • Contact US

Business Study Notes

B.Com, M.Com. BBA & MBA Exam Study Online

  • Home
  • Finance
    • Financial Management
    • Strategic Management
    • Investment Analysis and Portfolio Management
    • Project Management
    • Islamic Banking & Finance
    • Auditing
  • Marketing
    • Principle of Marketing
    • Marketing Management
    • International Marketing
    • Advertising & Promotion
    • Commercial Challenges
  • HRM
    • Human Resource Management
    • Principles of Management
    • Training & Development
    • Employee Performance Management
  • Others
    • Introduction to Business
    • Business Communication
    • Banking & Finance
    • Entrepreneurship
    • Economics
  • Personal Skills
  • Tips & Tricks
  • About Us
    • Contact US
Home » IJARAH or Lease Financing Definition | Benefits and Conditions to Apply

IJARAH or Lease Financing Definition | Benefits and Conditions to Apply

By Richard Daniels Reading Time: 3 mins
Updated August 5, 2017

IJARAH or lease financing is a lease of property with a promise of sale for the benefit of the lessee. This is a relatively recent financing technique involving three main players:

  • The supplier (manufacturer or seller) of the good
  • The lesser (in this case the bank that buys the property to rent it to its client)
  • The tenant who rents the property by reserving the option to acquire it definitively at the end of the lease

From the foregoing definition of IJARAH or lease financing, it comes to know that the right of ownership of the property accrues to the Bank throughout the period of the contract, while the right of enjoyment rests with the tenant. At the end of the contract, three cases may arise in lease financing or IJARAH:

  • The customer is obliged to acquire the property (lease-sale contract).
  • The customer has the choice to acquire or return the property (leasing contract).
  • The customer opts for a second lease of the property (renewal of the leasing contract)

Benefits of IJARAH or Lease Financing

Leasing is a relatively recent technique for financing investment (furniture and real estate). As such, it can be categorized as a form of long- and medium-term credit. Compliance with Shari a principles makes it a privileged formula used by Islamic Banks to finance investment in their relationships. The second advantage of this method of financing relates to the strength of the guarantee provided to the Bank as a legal owner of the leased asset.

For the economic operators, the advantages of leasing are multiple. On the one hand, it allows them to renovate their outdated or obsolete equipment and thus benefit from the latest technological developments. On the other hand, Advantage of avoiding long-term or medium-term fixed assets of part of their resources in the case of a self-financed acquisition or even financed by an investment loan.

Indeed, the annual expenses, within the framework of a financing are limited to the rents due during the period, which is very appreciated by the companies which have difficulty balancing their financial situation.

Firms that opt ​​for this type of financing can benefit from the positive difference between the amount of annual rents and the amount of depreciation that they should have recorded on their own funds if the property had been subject to an acquisition.

Finally, the margin of maneuver left to use,

Conditions to Apply in Business for Lease Financing | IJARAH

  1. The object of the lease (the use of the leased property) must be known and accepted by both parties.
  2. The lease must be for durable goods, i.e. non-destructible as a result of enjoyment or use.
  3. The leased property as well as the accessories necessary for its use must be given to the user in a state to be used for the use for which the property is intended.
  4. The duration of the lease, the period of payment, the amount of the rent and the periodicity must be determined and known at the conclusion of the leasing contract.
  5. The rent may be paid in advance, in advance or in installments according to the agreement of the parties.
  6. The two parties may agree upon a revision of the rent, the duration of the lease and any other terms of the contract.
  7. The destruction or degradation of the leased asset of an act beyond the control of the user shall be the responsibility of the user only if it is established and the necessary measures have not been taken to conserve the leased object. Well with the care of a good father of family.
  8. Unless otherwise agreed, it shall be the Bank’s responsibility to perform any maintenance and repair work required to maintain the leased asset in a state of use for its intended use. Likewise, it bears all rental charges prior to the lease. The user maintains the use of the leased property, as well as all the rental expenses incurred from the date of rental.

The leased asset may be subleased, unless otherwise agreed. Similarly, the Bank may lease property acquired from its own seller, provided that the sale is real and not fictitious (Lease back).

Author at Business Study Notes
Richard DanielsAuthor at Business Study Notes

Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
Love my efforts? Don't forget to share this blog.

Related Posts:

  • Lease Financing | Finance Lease vs Operating Lease
    Lease Financing | Finance Lease vs Operating Lease
  • What Is Modern Theory of Rent? Definition & Explanation
    What Is Modern Theory of Rent? Definition & Explanation
  • Musawamah Definition & Conditions to Apply and Benefits for…
    Musawamah Definition & Conditions to Apply and Benefits for Business
  • What are the Main Functions of Central Bank?
    What are the Main Functions of Central Bank?
  • Letters of Credit and Credit Instruments
    Letters of Credit and Credit Instruments

Filed Under: Islamic Banking & Finance

Related Posts

System-Views-of-Management-image

System Views of Management

System Views System views of management associates with the Management division of the organization and it assumes that all of the organizations are … [Read More...]

Leadership Theories

Situational Leadership Theories

Situational Leadership Theories Situational model of leadership is a factor that emphasizes the behavior of the leaders regarding different situations. … [Read More...]

Behavioral Leadership Model

Behavioral Leadership Model

Leadership  Leadership is the most critical and complex responsibility across any organization. It is because the leadership requires to be realistic, … [Read More...]

career development process in hrm

Career Development Process

Career Development Process Today's career development process has become a threat for students, especially a question that may stun many students who have … [Read More...]

Strategic leadership

Strategic Leadership Model

Strategic Leadership Model The strategic leadership model is basically the study of the leadership style. It describes the ways of modernizing an … [Read More...]

Types of Managerial Decision Making

Types of Managerial Decision Making

Managerial Decision Making Decision Making is an art of selection of one feasible alternative decision from many. Therefore types of managerial decision … [Read More...]

Quantitative-management-approach

Quantitative Management Approach

Quantitative Management Approach The quantitative management approach is used to enhance decision making power by using quantitative tools. As well as … [Read More...]

Effective-business-messages-image

Effective Business Messages

Effective Business Messages The process through which business messages are effectively prepared that have the potential to create desired results from … [Read More...]

Search the Site

ADVERTISEMENT

Business Study Notes

Business Study Notes is all about business studies or business education. Visit us to find here free business notes of all the subjects of B.com, M.com, BBA & MBA online.

Disclaimer

All the images and videos present on the Business Study Notes are not owned by us, if you found anything under copyrights, please Contact Us, we will remove it ASAP.

Categories

© Copyright 2023 Business Study Notes. All rights reserved. Privacy Policy, Sitemap.  
DMCA
PROTECTED