Essentials

of Islamic Finance

Registration No: 27585

Department: BBA

Faculty: Business Administration

Submitted To: Dr. Mudeer Ahmed Khattak

Submitted By: Mohsin Aziz

Submission Date: 30, March, 2021

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Essentials of Islamic Finance

Q#01: A new bus is leased by an Islamic bank to a bus company for five years. During the
lease period, excessive load was carried that damaged the bus and it led to the suspension
on the vehicle. What is the liability of the bus company in this case?
Answer: In Ijarah lesser is liable for all risks and benefits until or unless asset was damaged due
to the negligence of the lessee. In this case lessee was deliberately putting excess load on the
buss which led to the damage and suspension of the vehicle. So lessee is responsible for all the
damages and repairs.

Q #2: MHCL Company entered into an Ijarah agreement to lease a shop in Simon square
in Green Country. The lease contract stipulated all the details of the agreement such as the
rental and the location details, etc., except that it did not specify the exact location of the
shop within Simon square which is the subject matter of the agreement. Discuss the validity
of this Agreement.

Answer: The agreement would not be valid as all details need to be specified in the contract and
bank needs to own the asset before leasing it to the lessee. In this case the location was not
specified which is a clear violation of the Ijarah contract.

Q#3 MHCL Company entered into a lease agreement with MACL Company to rent a land
for RM 5,000 per month for a period of 6 years. In the fifth year of the lease, MACL could
not pay the agreed amount of rent for five months. In this case what is the action MHCL
could take against MACL?

Answer: MHCL has full right to take that asset back and also not return the token money as
MACL is in violation of the contract because they didn’t pay the rent for five months. MHCL
owns the full right to take the possession back in the aforementioned case.

Q#4 Can Token Money be taken by the lessor from lessee in a valid lease agreement?

Answer: Yes, in Ijarah lessor can take token at the end of the lease and for token consideration
(amount specified in the contract) and he will transfer the ownership of the asset to lessee.

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Essentials of Islamic Finance

Q# 5: The customer approaches the bank for obtaining a vehicle on lease. The customer
undertakes to make periodic lease payments for the lease period. Bank receives the title of
the vehicle and pays the vendor. Lease agreement is signed whereby the bank leases the
vehicle and the customer starts using the vehicle and pays rent for each period. In the end,
the customer can purchase the vehicle from the bank by way of a separate purchase
agreement. Is this a valid type of lease?

Answer: The process or the conditions for transfer of an asset are specified in an Ijarah contract
so purchase on a separate agreement is not permissible in Islamic banking. Even though all the
other requirements of Ijarah were fulfilled this contract still won’t be valid.

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