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Under this beat, the c consistnt selects the capital equipment or stead (additions) to be nuanced by the vernacular and the bank then purchases these pluss from the manufacturer or supplier and then absorbs them to the client for an concord pointedness. In conformity with the Sharis, the possessor of the assets (in this shell the bank) must be paid consume (fixed or variable, as agreed by the lesson and lessee) and must exercise altogether the rightlys and obligations that are concomitant to go forth power much(prenominal) as maintaining, insuring and repairing the assets.The lessee, on the other hand, obtains the procedure of the asset for the power point of the hire subject to paying the rent. The lessee whitethorn assume the obligations, such as maintaining, insuring and repairing the asset, in return for a reduced rent. 1 . 3. 2 What is cable simple machine ajar(predicate)? As menti sensationd above stir is basic wholey the enrapture of suffuses (defined b elow) of a fixed asset to a nonher person for an agreed period, for an agreed consideration. Under a rail gondola simple machine plump up agreement the railroad motorcar go forth be rented to the guest for the period agreed at the meter of take on.Upon point of the aim period the customer in the subject matter case discussed below, gets avouchership of the car against his initial surety deposit. gondola car jarful is a Sharis-compliant car-leasing end. It is establish on the normals of Jar and is completely free from the element of following. This product is knowing for interpretative individuals, looking for a car- financial backing scheme that helps in avoiding interest-based transactions. So car Jar is simply a rental agreement under which the car will be given to the customer in exchange for rent for a period, agreed at the time of the contract.Means Bank, based in Pakistan and a pioneer in this area, purchases the car and rents it out to the customer for a period of three, four or five years. Upon completion of the require period the customer gets possession of the car against his initial security measure deposit. Somewhat confusingly, the Means railroad car Jar scheme has elements of Jar WA Satin within it. In this case study I propose to follow the Means assumption in using Jar in the sense that it involves car ownership at the end of the maturity of the deal. This is in line with Sharis methodology and bourninology. . 3. 2. 1 What is Suffuses? Suffuses is the right of enjoying a thing, the property of which is vested in another, and to draw from the same all the profit, expediency and advantage that it may produce, willd it be without altering the substance of the thing. Items without suffuses cannot be hired. It is inevitable for a valid hold contract that the corpus of the leased asset remains in the ownership of the seller, and only its suffuses is transferred to the lessee. 1 . 3. 3 In what Sense is Car Jar Interest Fre e?In Car Ajar, the asset remains under the ownership and at the run a risk of the bank and the customer only pays the rental for the use of the asset, Just like the rent of a house. 3 Under leasing or lease purchase, the Islamic monetary institution bargain fors the financed asset and retains the title through the life of the contract. The customer makes a series of lease retributions over a specified period of time, and may have the cream at the end to buy the item from the lesson (and owner) at a pre specified residual value. Leasing was not originally a style of financing.It was simply a transaction meant to transfer the suffuses of a property from one person to another for an agreed period and an agreed upon consideration. Leasing can be used as a panache of financing, in Islamic banks, as an alternative to stodgy car financing. However, the consideration of leasing as a dash of financing should be based on certain notations. It should be understood, by all using it as a mode of financing, that it is not commensu ordain to substitute the term interest with the term rent, and use the term mortgage instead of the term leased asset.There must be a significant diversity in the midst of leasing and an interest-bearing loan. It is no secret that an Islamic bank or pecuniary institution will take into consideration the same factors as a conventional bank when determining the rental wagess and residual value. These would include the rate of inflation, the creditworthiness of the Jesse, the opportunity cost value of the money (as reflected by commercialize interest rates) and so on. An implicit interest rate can trivially be metrical from the price, residual value, term of the lease and the lease payment.This fact is not hidden. and so Muslim customers are encouraged to shop around and ensure that the Islamic pecuniary institution is not implicitly charging an interest rate, which is in line with the conventional market. In the final analysis, however, the difference is in the form of the contract. If the lease is incorporated in accordance with the various conditions within Islamic Jurisprudence, t will contract no rib and ensure that it cannot contain such nix rib in the future (e. G. In terms of late payment fees, etc. ). 1 . 3. 4 What is the Difference mingled with a stuffy Lease and an Islamic Lease? The most important financial difference surrounded by Islamic leasing and conventional leasing is that, with Islamic leasing, the leasing agency must own the leased object for the duration of the lease. Therefore, although leasing a car from a car manufacturer or car dealership may in principle be permitted for Muslims (if the contract satisfies the other conditions), Muslims should investigate further.In mevery cases, the car dealership may in fact use a bank or other financial intermediary to provide a loan for the express value of lease payments, and charge the customer interest on this loan. This would compe l the forbidden rib. Scrupulous Islamic financial institutions ensure that the contract abides by all the restrictions set out in the Sharis (e. G. , subleasing requires the permission of the lesson late payment penalties must be handled very carefully to avoid rib, etc. ). The differences between conventional and Islamic financing schemes are described in he sections below. 1. 3. 4. Leasing versus Conventional Financing Conventional Financing The conventional financing schemes provide financing for purchasing a car that is, in essence the run is giving a loan and charging interest. 4 Islamic Financing The Islamic car financing Jar is based on a lease contract. It is not a financing scheme rather it is a lease contract. As mentioned earlier leasing is a contract whereby suffuses rights to an asset are transferred by the owner, known as the lesson, to another person, known as the lessee, at an agreed-upon price, called the .NET, and for an agreed-upon period of time, called the te rm of lease. . 3. 4. 2 Rentals versus Installments A conventional car financing scheme is really an interest-based loan given by the financial institution, with interest being charged on the loan. Islamic car financing is based on pure rentals. In Car Jar the asset remains at the ownership and risk of the bank and the customer only pays the rental for use of the asset, Just like the rent for a house. 1. 3. 4. 3 Ownership In conventional car financing, the car is purchased in the name of the purchaser from the dealer. Islamic FinancingUnder Jar the ownership remains with the bank that is, the car is purchased from the dealer in the name of the bank. This is because it is one of the foremost conditions of the Islamic mode of leasing that an object cannot be leased out unless it is in the possession of the lesson. 1. 3. 4. 4 Risk/ neediness Since the car is bought in the name of the buyer in the traditional mode of car financing, the risk is immediately transferred to the buyer, wh ereas in the case of Islamic financing, this is not so. The car is purchased in the name of the bank from the dealer and so the risk mains entirely with the bank.As the corpus of the leased property remains in the ownership of the lesson, all the liabilities and risks emerging from the ownership are borne by the lesson. The lessee is responsible for any loss caused to the asset by misuse or negligence. The lessee can excessively be make liable for the wear and tear, which normally occurs during its use. But the lessee cannot be made liable for a loss caused by factors beyond his control. (The agreements CIO 5 with traditional car financing generally do not secernate between these two situations.In a lease based on Islamic principles, both situations should be dealt with separately. 1. 3. 4. 5 Down-payment versus Security Deposit Both the down-payment and the security deposit are one-time payments. The major difference occurs because the buyer can buy back the car against the secu rity deposit in the case of Ajar, whereas in conventional banking the down-payment remains with the bank, and no buy-back of the car can occur against the down- payment. With Jar the buyer is required to keep a security deposit at the bank.There is a minimum and a maximum demand for the security deposit. The requirement is efferent in the case of conventional car financing, where a down-payment is made by the buyer of the car. 1. 3. 4. 6 Return of the Car In a traditional car financing scheme, the customer takes out a loan to purchase the car, which he cannot return under any circumstances whatsoever, unless he pays off the loan. Islamic Financing In the Islamic mode of financing, the buyer has the right to return the car anytime during or at the end of the lease period.Since this is a lease agreement, and the lessee has been paying rentals, he can return the car to the bank and take back the security deposit any time he wishes. . 3. 4. 7 line of Contract The buyer of the car has t he option and right to terminate the contract and return the car before the contract reaches its maturity in both the conventional and Islamic mode of car financing. The difference lies in the post-termination phase. In the conventional car financing scheme, if the customer wants to terminate the contract the only option he has is to buy the car by paying the rest of the installments.In the Islamic car financing scheme, the customer has two options either return the car and get back the security deposit or buy the car from the bank at the market alee plus a certain percentage of spread for the bank. 6 1. 3. 4. 8 Documentation Differences Sequence/process Islam considers the procedure in which any transaction takes place as a significant factor in all modes of financing. The underlying difference between the Islamic and conventional modes of financing is that of the process. To Muslims, not only the end result but in any case the factor to it are important.If the result is correct and the steps are wrong, or crime versa, the entire process is deemed invalid, from a Sharis perspective. According to Sharis principles, rule-governed steps to lawful results are very important. The most important financial difference between Islamic permitted leasing and conventional financial leasing is that the leasing agency must own the leased object for the duration of the lease. Ownership of the asset is the prerequisite for leasing out its suffuses. As mentioned, Islam places great emphasis on the sequencing. 1 . 3. The Means Bank Car Jar Scheme Means Banks Car Jar has been intentional jibe to the principles of Islam and is completely interest-free. Moreover the Jar contract and other documentation also comply with Sharis requirements. In contrast, a conventional car-financing scheme s actually an interest-based loan given by the financial institution with interest being charged on the loan. Also, in conventional car-leasing schemes, the lease contract is not in complian ce with Sharis law and has rib and other UN-lilacs elements in it. 1. 3. 5. What Makes Car Jar Unique? Some of the key characteristics of the Means Car Jar are described in the following sections. Rights and Liabilities of Owner Versus User Jar is an asset-based contract, that is, the lesson should have ownership of the asset during the life of the contract. Under Sharis law all ownership-related rights and abilities should lie with the owners while all drill-related rights and liabilities should lie with the user. A conventional lease contract does not distinguish between the nature of these liabilities and dumps all liabilities on the user.This is not permitted under the Sharis. Under Jar all ownership-related risks lie with the bank and all usage related links lie with the user, thus making the lesson the true owner of the asset and making the income generated through the contract permissible (hall) for the Islamic bank. Continuation of Lease Rentals in the Case of complete Lo ss or Theft of Vehicle If the eased vehicle is stolen or completely destroyed the conventional leasing company would continue charging the lease carrier rent until the settlement of the insurance claim.Under the Islamic system, however, rent is consideration for usage of the leased asset and, if the asset has been stolen or destroyed, the concept of rental becomes void. As such, in the above-mentioned eventualities, Means Bank does not charge the lease rental. Is there a Penalty for Late Payment of Rent? If so How is This Permissible Under the Sharis? In most conventional financial leases an unornamented monetary essence is charged if rent is to paid on time. This senseless amount is considered as rib under the Sharis and is distinctly forbidden 7 (harm).The lessee may be asked to undertake that if he fails to pay rent on its due date, he will pay a certain amount to a charity that will be administered through the bank. For this purpose Means Bank maintains a charity fund where such amounts may be credited and disbursed for charitable purposes. What is the Insurance Arrangement under Car Ajar? Being the owner of the car, the bank will be responsible for insurance of the car and for paying the insurance premium. If Tactful (Islamic insurance) is not available, the insurance is do under the conventional system.Can the User Buy the Car Prior to the Termination of Rental Agreement? Yes. The rental agreement contains the purchase price schedule. Is the increase Approved by Means Banks Sharis maturate Yes. Car Jar is designed under the supervision of Means Banks Sharis Supervisory Board and is approved by the Board. In order for any Islamic financing technique to be acceptable to the Islamic community it has to be endorsed by the appropriate Sharis Board who will provide a Fatwa (a religious ruling). The appendix to this case illustrates the Fatwa applicable to the Means Bank Car Jar agreement.