Prj

“Car Leasing in Islamic Banks” Islamic Banking: Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics. Sharia prohibits the payment of fees for the renting of money (Riba) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam). While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.

“Islamic Bank’s Leasing” Islamic banks use term for car leasing called Ijarah means lease, rent or wage. Generally, Ijarah concept means selling benefit or use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets / equipments such as plant, office automation, motor vehicle for a fixed period and price.

:3Major Islamic Banks Offering car Leasing (Ijarah) to Discuss in this Project:

1.

2. 3.

when we visit Meezan Islamic bank’s car Ijarah (Leasing) there we interview auto finance manager main question which were ask to him by 1 of our team member are given below:    

What is the mechanism of decision making at your department? Who is here to change products or services? Who can change the terms and conditions regarding car leasing? Is this really Islamic way of leasing car or Auto finance?

Manager Entertain our answers well and we also take help from bank’s website to get answers regarding our project:

Decision Making: According to Meezan Banks auto finance manager and their Website their head office is situated in Karachi and there are some board of directors who

Conditions regarding car leasing: Car Ijarah, Pakistan’s First Islamic Car Financing

As a step towards Meezan Bank’s mission to provide a one-stop shop for innovative value added Shariah compliant products, Meezan Bank’s Car Ijarah unit provides a car financing, based on the principles of Ijarah and is free of the element of interest. Car Ijarah is Pakistan’s first Interest Free car financing based on the Islamic financing mode of Ijarah (Islamic leasing). This product is ideal for individuals looking for car financing while avoiding an interest-based transaction. Meezan Bank’ Car Ijarah is a car rental agreement, under which the Bank purchases the car and rents it out to the customer for a period of 3 to 5 years, agreed at the time of the

contract. Upon completion of the lease period the customer gets ownership of the car against his initial security deposit.

Car Ijarah also features Used Vehicles! In addition to our leasing of new cars, Meezan Bank also provides the unique opportunity of leasing second hand, both locally assembled and imported vehicles. This feature is specifically designed as a highly economical option. The Used Car Ijarah facility is made available at a minimum-security deposit as low as 20%. Financing of used cars are subject to a selection criteria.

Shariah Compliance Car Ijarah, designed under the supervision of Meezan Banks Shariah Supervisory Board, is uniqe leasing facilities provided by other banks. •

Difference in the Rights & Liabilities of Owner v/s User

•

Calculation of lease rentals in case of total loss or theft of vehicle

•

Takkaful instead of Insurance

•

Permissibility for Penalty of Late Payment of Rent under Islamic Shariah

Key Features of Car Ijarah •

Low monthly rental

•

Rental paid after delivery, not in advanced

•

Fastest processing and delivery

•

Tracker option available

•

Minimum security deposit as low as 10%

•

All new, used, local, imported and luxury vehicles can be financed

Rental Calculations

For information on calculation of monthly rentals contact use our Car Ijarah Calculator or call our 24/7 Call center.

Apply for Car Ijarah! To apply for Meezan Bank’s Car Ijarah, fill out a customer application form (available at any Meezan Bank Ltd. Branch), attach the required documents and get your financing approved in a 1-2 working days. For further details make an appointment with an officer or call our 24/7 Call center

Advantages of Ijarah  Ijarah provides the following advantages to the Lessee:  Ijarah conserves the Lessee' capital since it allows up to 100% financing.  Ijarah gives the Lessee the right to access the equipment on payment of the first installment. This is important as it is the access and use (and not ownership) of equipment that generates income.  Ijarah arrangements aid corporate planning and budgeting by allowing the negotiation of flexible terms  Ijarah is not considered Debt Financing so it does not appear on the Lessee' Balance Sheet as a Liability. This method of "off-balance-sheet" financing means that it is not included in the Debt Ratios used by bankers to determine financing limits. This allows the Lessee to enter into other lease financing arrangements without impacting his overall debt rating.  All payments towards Ijarah contracts are treated as operating expenses and are therefore fully tax-deductible. Leasing thus offers tax-advantages to for-profit operations.  If the equipment is used for a relatively short period of time, it may be more profitable to lease than to buy.  If the equipment is used for a short period but has a very poor resale value, leasing avoids having to account for and depreciate the equipment under normal accounting principles.

The thrust for Islamic Banking is founded on the desire to submit to the Divine Instructions on all transactions, particularly those involving exchange of money for money. However, it would be quite unfair to limit Islamic Banking to elimination of Riba only. Riba is but one of the major undesirable elements of an economic transaction, the others being Gharar (uncertainty) and Qimar (speculation). While elimination of these objectionable aspects in a transaction is indeed a critical aim of Islamic banking system, it is by no means its ultimate objective. At the heart of Islamic Banking is a system of commercial transactions that not only provides Halal modes of commercial transactions by avoiding that which is obnoxious and objectionable, but also fosters ethical, fair and just practices. A key element of Islamic economics is distribution of equitable rewards to the different factors of production. Islamic economic system seeks system of Redistributive justice where concentration of wealth in a few hands is countered and flow of money into economy is fluent. Islamic Banking is, therefore, seen as a lynchpin to achieving the economic and social goals of the Islamic economic system. Riba It has been argued in vain for long in some circles that the prohibition in Islam is that of excessive interest only. Or that it is the interest on consumptive loans that has been forbidden and as such loans extended for commercial purposes are entitled to an excess over the principal amount lent. Such tendentious arguing fails to give due understanding to verses 278 and 279 of Surah Al-Baqarah (quoted below). “O ye who believe! Be afraid of Allah and give up what remains (due to you) from Riba (usury) (from now onwards) if you are (really) believers! 2:278

And if you do not do it, take notice of war from Allah and His Messenger! But if you repent, you shall have your capital sums 2:279 However, this does not mean that Islam prohibits any gain on principal sums. In Islam, profit is the recognised reward for capital. When capital employed in permissible business yields profit that “excess over capital” becomes the rightful and just claim of the owner of the capital. As a corollary, the risk of loss also rests exclusively with the capital and no other factor of production is expected to incur it. Another important element of Islamic finance is that profit or reward can only be claimed in the instance where either risk of loss has been assumed or effort has been expended. Profit is therefore received by the provider of capital and wages/remuneration by labour/manager. A depositor in an Islamic bank can therefore make earnings on his or her deposit in several ways. Through return on his capital when that capital is employed in a business venture; through sharing of profit when his capital is part of the capital that is employed in a partnership, and finally through rental earnings on an asset that has been partially financed by his capital. Islamic financing: Asset-based financing A key feature of Islamic banking is that unlike conventional banks which deal primarily in money and financial securities, Islamic financing is related to an asset that is a feature of the transaction, and quite often the principal feature itself. From this springs an important distinguishing feature of Islam wherein Islamic financing is always based on illiquid assets that have intrinsic value. Profit to Islamic financing is generated through bonafide sale of these assets. Conventional banking, on the other hand, is free of such limitations. It lends money and makes its earnings through this act of lending. Its earnings are unconcerned with the economic fate of its lending. Alfalah Car Ijarah A Shariah compliant car-leasing scheme with added features such as:

•

No upfront registration charges

•

No upfront insurance premium

•

No rentals before delivery of car

The facility applies to all locally-assembled new cars up to Rs 4 million. Used cars not older than three years can also be considered.

A Perspective: The history of Islamic banking from its recorded inception is less than 40 years old. From a humble beginning in a small village in Egypt in the late 60’s, it has spread to the four corners of the world. By normal standards in a time span that is less than half a century it could have hardly been expected to establish foothold in Muslim world, let alone make its presence felt in Muslim-minority countries. Yet such has been its phenomenal rate of growth that not only is it taking firm roots in its homestead, but is also attracting genuine interest among the standard bearers of conventional banking and in swathes of land where Muslims are a small minority only. Still there is much ground left to cover. In Pakistan, Islamic Banking is less than 3% of the Banking sector. Even in the Gulf states, where it has a larger footprint, in no single country is the volume of Islamic banking more than a third of the entire sector. Many blame Islamic Banking’s small share against conventional banking to a smaller portfolio of products. A standard complaint against Islamic banks is that they do not have the same variety of financial instruments as found in conventional banking. Though valid to an extent, this popular jeremiad needs to be seen in the perspective of Islamic Banking’s brief history against more than two centuries of conventional banking adopted in full force across the globe, its competition against an entrenched system of banking and the constraints within which it must operate. Notwithstanding, Islamic banking is still growing at more than twice the growth rate of conventional banking worldwide, and while it may not have the latter’s plethora of financial products, its repertoire of Islamic financial products is steadily increasing. In the following space, principal Islamic instruments are briefly described to acquaint the reader with their fundamental aspects. Following that, Islamic Products in BAL-IBD’s portfolio are illustrated in terms of their features.

Decision Making and Data Mining in Bank Alfalah Islamic Bank:

Their decision making is done by the board of directors and they try to made decision on the basis of research for this they have R&D ,Research and Development department who find out defects and facts regarding customer satisfactions , and after their research papers yearly basis they send the quotations to board of directors to approve/ Disapprove or to make some suggestions about the research for this purpose they use Statistical tools and surveys to know what to do and how to do .

Dubai Islamic Bank has the unique distinction of being the world’s first Islamic bank, a pioneering institution that has combined the best of traditional Islamic values with the technology and innovation that characterise the best of modern banking. Since its formation in 1975, Dubai Islamic Bank has established itself as the undisputed leader in its field.

Eligibility

Minimum Age at the time of Application

Maximum Age at the time of Finance Maturity

Salaried

21 Years

60 Years

Self Employed Professional

21 Years

65 Years

Self Employed Businessman

21 Years

65 Years

Customer Class

You are Eligible for Dubai Islamic Auto Finance if:

Your Monthly Net Income is

Rs.10,000

You Have Been Working For Salaried

3 Months

Self Employed Professional

6 Months

Self Employed Businessman

12 Months

Documents Required

• • • • •

Copy of primary applicant’s CNIC. Copy of co-applicant’s CNIC (if applicable). 2 passport size photographs. Latest salary slip. 6 months Bank statement (if applicable).

•

Bank certificate (if applicable).

Features Flexibility

• New or Used Cars. • Local or Imported/Re-conditioned Cars. • Payment plan with tenure options ranging from 1-7 years. Free Tracker Device & Monitoring All vehicles financed by DIBPL are installed with a Tracking device on Bank’s • Ready Delivery and Advance Booking. expense by the top Tracking companies in Pakistan. Monitoring charges are •

also Income clubbing option.

borne

by

the

Bank.

Lowest Insurance/Takaful Rates

Guaranteed Lowest Insurance/Takaful rates compared to any other Bank.

Payment Advance Booking Cases

No monthly rental payments will be made by the customer before delivery of the car in Advance Booking cases.

Monthly Rental

Tracker & monitoring charges are free of cost, yet monthly rentals are competitive and affordable as per industry standards.

Financing Amount

DIBPL

will

finance

up

to

85%

Minimum financing: Maximum financing: Rs.3,000,000 Islamic Product

of

the

car

value. Rs.100,000

We provide fast and hassle free processing of application through a Sharia compliant process.

Official Document Regarding Sharia Board

References http://www.dibpak.com/AutoFinance.aspx http://www.google.com.pk/search?hl=en&ei=pAuMSZ70G NXLkAWQsP2sDA&sa=X&oi=spell&resnum=0&ct=result &cd=1&q=dubai+islamic+bank+pakistan+car+leasing&spe ll=1 http://www.phonebook.com.pk/Dynamic/CompanyDetail.as px?Comp_ID=40480&k=&Class_ID=272&City_ID=56&S earchType=cat http://www.bankalfalah.com/about/download/Bank%20Alfa lah%20Annual%20Dec%202006%20Final%20march%201 4,2007.pdf http://www.bankalfalah.com/islamic/consumer_banking.asp www.meezanbank.com