Al-Ijarah Thumma Al-Bay Car Financing (AITAB)

Nurul Fathihah binti Zainal Abidin 1013092 Nur Syaedah Kamis 1015352 Nadiah Mohd Noor 1017474

TERMINOLOGY & DEFINITION

TERMINOLOGY ARABIC WORD DEFINITION

IJARAH

AJARA/UJR IJARAH THUMMA AL-BAI

REMUNERATION/ REWARD

AITAB

HIRE AND PURCHASE

One of the categories of Ijarah is Ijarah Thumma Al-Bai (AITAB). It concludes the sales of the assets in which the legal title of the leased asset will be transferred after certain period of time to the customers. In Shariah, Ijarah is a contract of lease which means to take possession of utility or services for payment. It indicates selling of a benefit, use of service for a price which can be fixed or floated. In Shariah, AITAB is a contract used by the owner of an asset to rent the asset to the hirer, and the hirer is given the option to purchase the asset at the end of the tenure. In AITAB, there are two types of contract which are: 1. Ijarah leasing contract 2. Bai sales contract

LEGITIMACY
AL-QURAN HADITH
said one of them O my father engage him on wages whover hired a worker must inform of his wages (Surah al-Qasas: Ayah 26) (Hadith reported by Ibn Majah, Sunan Ibn Majah 2/817) if you had wished, surely you could have exacted some give a worker his wages before his sweat (body odour) recompense for it (Surah al-Kahf: Ayah 77) is dried (Hadith reported by Ibn Majah, Sunan Ibn Majah 2/817)

The validity of AITAB is no different in its rules from the original Ijarah except that it is associated with a promise by the owner of the asset to transfer the ownership to the hirer at the end of the Ijarah term. It can be confirmed by the Resolution of the OIC Fiqh Academy No 110 (4/12)

Al-Ijarah Thumma Al-Bay AITAB

Islamic Car Financing in Malaysia

Bay Bithaman Ajil

Murabahah

The Concept of AITAB Car Financing

(2)

CUSTOMER

(4) (5)

BANK

(1)

(3)

VENDOR

DESCRIPTION 1. The Customer identifies the vehicle and pays deposits. (usually 10% deposits) 2. The Customer approaches the Bank and obtains AITAB financing facility for the Balance Purchase Price. 3. The Bank purchases the vehicle from the vendor and pays the remaining Purchase Price. 4. The Bank and Customer sign the Lease Contract. The Bank leases the vehicle to the Customer at certain rental price and the customer will pay the rental amount to the Bank within the agreed period 5. The Bank sells the vehicle to the Customer at the end of the financing period by virtue of the Sale Contract signed by both Bank and Customer.

The National Shariah Advisory Council of Bank Negara Malaysia has concluded that an AITAB facility must have the following characteristics: Modus Operandi of an AITAB contract must consists of two separate contracts i.e. Ijarah Contract and Bay Contract; The selling price of the asset, after the expiry of the ijarah Contract should be the last rental amount paid by the lessee; The owner should appoint the lease as the agent for the owner during the ijarah Contract; The AITAB agreement should include a clause will sell the asset at the end of the period and a redemption clause in case of early settlement; Deposit paid by the lessee to the vendor is considered as deposit paid by the owner and will taken into consideration in determining the rental amount; To be consistent with ijarah contract the owner must bear all reasonable risks attached to the asset as the owner of the asset; The owner must encourage the lessee to take takaful coverage by appointing takaful operators as their panel insurers; and For the case of refinancing, the lessee must cancel the first AITAB contract before entering the new AITAB.

Differences between AITAB and Conventional Hire Purchase

Ijarah Thumma AlBai (AITAB) Conventional Hire Purchase
AITAB contract is based on Shariah Hire Purchase contract is based in Hire Requirements and Hire Purchase Act 1967 Purchase Act 1967

During ijarah Contract, the responsibility for bearing maintenance cost rests with lessor, unless, there is an agreement that the lessee is to bear a particular cost
The asset to be leased under an Ijarah Contract must be deemed halal under Shariah. It must not involve haram elements, such as gambling, alcoholic beverages, or swine Two agreements executed separatelyLease Contract and Sale Contract

In Hire Purchase Contract, the market practice states that the lessee is to bear the maintenance costs
Not Applicable

Only one agreement executed. Hire Purchase Agreement

Application:
Bank as the owner of the vehicle. Financing Period, min= 1 year, max= 9 year. Eligibility of the customer. Purchase price Banks Profit Deposit of 10% Margin of Financing Takaful Early settlemant Rebate/ Ibra Compensation charge Transfer of ownership.

Issues
Ownership
In Ijarah, the owner of the asset is the lessor ie (bank), the lessee is only entitled to the usufruct of the asset. what if the purchaser has paid deposit to the car dealer? there is assignment of right from the lessee to the lessor SAC: Lessor is the owner of the asset although its name is not in the title. Has beneficial interest.

 Liability and maintenance whether the bank as the owner has liability in any maintenance of the car and in case of accident. The owner (bank) has transferred the such liability to the lessee. It is because the lessee is the one who obtains the manfaah of the property. Thus, the responsibility is borne to the lessee.