Assignment:

Ijara VS murabaha
DEFINITIONS:
IJARA MURABAHA
The term Ijara literally means rent, A
single asset Trust is created whereby
the Trust purchases the property, and
then leases the property to the
customer. A portion of each monthly
payment goes towards ownership,
until the customer owns 100%.
Murabaha is an acceptable form of
credit sale under Sharia. Similar in
structure to a rent to own
arrangement, the intermediary retains
ownership of the property until the
loan is paid in full.

Execution:
Ijara Murabaha
Transferring of usufruct not
ownership
To another person for an
agreed price, at an agreed
consideration.


Subject of lease
Valuable, Identified and
Quantified


Anything which cannot be
used without consuming
cannot be leased out; e.g.,
money, wheat etc.
Period of lease
Must be determined in clear
terms at the time of contract
All Liabilities of ownership are
borne by lesser


The rental must be determined at the
time of contract for the whole period
of lease.


Applications:
In an Ijara islamic finance transaction, you are technically a tenant. You sign
a lease obligating you to a rent payment over a period of time.
owever, unlike a typical rental property lease, you are responsible for all the
maintenance of the property, and you have all the other rights and duties of a
homeowner.
Once you have fulfilled your obligations under the lease or promise to
purchase, you become the owner of the property.
Murabaha:

Permissions and Restrictions:
Permissions Restrictions
Ijara
The bank is allowed to lease the asset The Transaction must be under Shairah
Compliance.
The leased asset can be used differently by
different users, with the express permission of
the lesser.
There should be at least one year lease period
It is permissible that different amounts of rent
are fixed for different phases during the lease
period.
There should be separate contracts for sale and
lease
The agreement to sell at the end of the lease
must be separate
The intention of the client is to avoid interest
related transactions
Murabaha
In a Murabaha (cost-plus) contract, it is permitted
A Murabahah attributed to a future date is invalid
for the financier/seller to charge the customer a
price that is higher than the market price.
in Shariah.
it is also permitted for the seller/financier to use
the interest-rate as a benchmark in determining
the profit.


Conclusion:
A Murabahah attributed to a future date is invalid in Shariah. But leasing can be attributed to a
future date.
A Murabaha can not be transacted on a future date as the sale would be executed
simultaneously after taking delivery from the supplier and seller would never bear its risk which
Shariah does not permit . But in leasing it is permissible, because in leasing the asset remains
under the risk and ownership of the lessor throughout the leasing period.