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Analysis of Ijarah Ijarah is a slightly better alternative to all other modes, besides Musharakah and Mudarabah.

But, the problem is that it only applies to tangible assets which are rentable (not consumable). While the credit card can be used for consumption purposes also like paying for fuel expense, paying for meals at restaurant, paying utility bills etc. In currently practiced Islamic banking, the lease tenure is systematically set and all the costs are amortized during the lease tenure. If a customer does not agree to such a schedule, the bank does not enter into a contract with that customer. This is not the way we usually take an asset or property on lease in real life. The landlord or asset owner does not usually want to receive rents in such a way so as to cover all the costs of the asset including the profit as well from the same tenant/lessee. But, this is a necessary condition in leasing an asset or property from an Islamic bank. The Islamic banks set the rent using the same benchmark rate used by conventional banks. The rents are set in a way that all costs related to the asset including the insurance cost too are covered by the bank through rents. These rents are not in line with rents on these assets in the rental market. They are just reflective of banks cost of capital which the bank amortizes no matter what is the lease term. For instance, in real life, if one takes an asset on rental basis for one year or two year, the rental rate usually remains same. But, in Islamic banks, shorter the period, the more will be the rent as banks through rents want to amortize all their costs which include their profits too and they want to receive it from just one lease contract with one customer. Islamic bank leases the asset, but for all practical purposes, it prices the rents in a way so as to cover all costs and amortize them including the banks profit too. The Islamic banks profit in leasing products is the same as conventional banks due to this reason. Following table looks at the features of both:
Features Benchmark Rate Basis of Rent Nature of Installment Rent + Sale contract Changes in Rent Price and Market Risk Price of Asset Cost to the borrower
1

Conventional Mortgage KIBOR KIBOR Interest + Principal Repayment Dependent Based on KIBOR No Locked at initiation Same in both cases

Diminishing Musharakah KIBOR KIBOR Rent to cover all costs plus profit Separated by unilateral promise 1 Based on KIBOR No Locked at Initiation Same in both cases

This is also an eye washer as bank would not contract with someone who does not give this unilateral promise. So, for all practical purposes, this becomes a binding condition. Through binding both legs of the transaction, bank avoids all risks related to the asset practically. Insurance of the asset covers all major risks and this insurance cost is eventually paid by the client in rents. Price risk is avoided by quoting rent which is unchangeable and which ensures a significant profit to bank.

Profit to the bank

Same in both cases

Same in both cases