(ii) al ijarah muntahia bitamleek – ijarah with option to transfer b) Ijarah Muntahia Bittamleek that gives the lessee the right of ownership of. BankJatim largest bank in East Java, with our growing for sure. Akad Al-Ijarah Muntahiyah Bittamlik is a form of innovation that does not exist in the discussion of classical scholars, in which there are two.

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Skip to main content. Log In Sign Up. A Risk Management Perspective. The paper then lists the various models of IMB financing as implemented across jurisdictions in practice, and studies the various forms of documentations as used by Islamic banks in offering this financing product.

Subsequently, the paper provides a critical insight into the various issues and challenges that arise from the current practices.

Fatwa, Standards & Resolutions

The differences in treatments by various banks in possible outcomes of default, termination, early settlement, etc are also elaborated upon and scrutinized. The paper ends with concluding points and references. In other hand, Musharakah Mutanaqisah and Everyone needs a shelter for rest, sleep, comfort and IMB have been widely acknowledged and accepted by protection from sun and rain.

It is a place to dwell in Shariah scholars.

Ijarah Muntahiyah Bit Tamlik | Bank Jatim

Therefore, owning a good home is an Islamic finance unlike conventional finance is aspiration of everyone. People fulfill this need by building governed by Shariah rules that prohibit interest-based a home on their own, purchasing it or renting it from transactions. Islamic financial institutions have profits. Meera and Muntahiyyah, It is also a bittampik that the subject of the contract must Definition and characteristics of Ijarah actually and legally be attainable.

It is not permissible to lease something that cannot be delivered. Furthermore, it Ijarah has been conceptually understood as a contract of is permissible for the two parties to agree during the exchange where one party enjoys the benefit arising bittxmlik lease period to review the lease period or the rental or employment by another party in return for a consideration both.

That is bithamlik the lease contract occurs for the services rendered bittampik from the use of an asset. In brief, these such as damage, payment of premium cost and basic definitions agree ijaarah the fact that the contract of Ijarah is a maintenance.

There is no objection to authorizing the contract on using the benefits or services in return for lessee to undertake all the above but the costs thereof compensation. Literally, Ijarah means to give something on rent. The main criterion a person in consideration of the services rendered by used in the classification is whether the lease includes a him.

Ijarah has include a promise that a legal title will munthaiyah to the lessee, been conceptually understood as a contract of exchange it is classified as Operating Ijarah and if there is a in which one party enjoys the benefit arising from promise it is Ijarah Muntahia Bittamleek. In essence, the employment by another party in return for a consideration subtle difference between Ijarah and Ijarah Muntahia for the services rendered and from the use of bittamoik asset.

Bittamleek lies in the pre-existence of that promise This classical definition was the basis of many of the whereby a lease concludes with the legal title passing to contracts of exchange even before the times of the the lessee through either: Since that time, the amount as specified in the lease; iii transfer prior to the operation of these contracts developed to a higher level end of a lease for a price equivalent to the remaining of sophistication during the period of the companions of Ijarah installments; or iv a gradual transfer of the legal the Prophet.

However, the basis of operation remained title sale of the leased asset. The basic feature of the Ijarah contract has been that it is a contract of exchange between one to another party Ojarah associated with Ijarah Muntahia Bittamleek hereinafter called one-to-one Ijarah. For example, one contract party is given the right to use the services of a person or of a given asset from another party for a consideration.

Investors in Ijara and Ijarah Muntahia Bittamleek are no This contract has not involved the transfer of ownership less risk averse than other investors. However, Islamic biittamlik the other party as there has been no intention to investors may mmuntahiyah somewhat more restricted in the use of purchase or to own the Ijarah object by ijarwh interested credit enhancement or risk mitigation techniques.

Ibttamlik time, however, this concept has developed fundamental precept of Islamic finance is that a person into transactions with more complex features that give who invests in an asset should bear the risks inherent in rise to variations from the basic structure of the Ijarah the asset in order to earn profits biittamlik its ownership. The distinguishing feature of this mode is bottamlik, depending on the scope and structure of the that the assets remain the property of the Islamic bank to provisions that are employed, may be inconsistent with put them up for rent every time the lease period bearing the risks of investment.


When a party seeks to terminates so that they do not remain unutilized for long escape risks, the ensuing profits may be tainted by riba. Furthermore, there are some conditions Islamically, there is always a linking of risk and reward, that Ijarah bittamlkk need to follow in order to be in so the question arises as to whether techniques that consonance with the principles of Islamic finance.

These curtail risks are Islamically acceptable. It is associated with claims on elements of risk inherent in any Ijarah Muntahia the remaining amount of damages in the event that Bittamleek transaction. For the easier understanding of hamish jiddiyyah is insufficient litigation cost, loss of which risk is associated with contract, contract has been claims.

Customer enters into a Lessor requesting the Lessor to acquire an asset or munthiyah of understanding Agreement to Lease acquire the usufruct of an existing assets which the with an IIFS requesting the IIFS to purchase a specified customer wishes to take on lease.

Bittamli contract can be kind of asset with a promise to lease. The IIFS should drawn via a Master Agreement to be followed by first purchase the asset prior to execution of an Ijarah execution of multiple confirmations of offer and contract. Asset can be purchased from customer and acceptance of individual Ijarah transactions or individual subsequently leased back to the customer Sale and contracts. Contract is binding and cannot be cancelled Leaseback.

IIFS obtains price quotations from suppliers unilaterally. The lease period should commence from the or appoint a purchasing agent Iajrah. The Contract should specify: Transfer of the usufruct to the Lessee for an agreed Risk that appears in this stage is supply risk as part of period at an agreed consideration operational risk. Supplier has to deliver the asset and The leased asset must have a valuable use must be able to meet the specified quality risk may be The leased asset must be fully identified by the associated with low quality assets.

The lease rental on arms muntahiah basis which may result in manipulation of may be paid by cash, kind goods or usufruct. The rental must be specified, either in a lump sum payment in advance btitamlik in arrears; or in installments over duration of the lease.

The rental can be fixed or variable. IIFS is responsible for the Customer is unable to service the lease rental as and risks associated with the asset.

Islamic Finance | Ijarah Muntahiyah Bittamlik

This inability can be due to variable This stage is associated with two types of risks. When the pay loss of rental receivables. Alternatively, the rentals or selling price to the original customer low IIFS as the owner has the right to repossess the assets.

Long-term Ijarah Muntahia Bittamleek with rd selling price to a 3 party and cost of the asset when fixed rental is susceptible to changes in market customer breaches the Agreement to Lease.

Risk Mitigation may be an option of for damages. The insurance cost can be included as part renewable short term leases with price reflex subject to of the fixed lease rental and cannot be charged mutual consent or adopts variable lease rentals which are separately to the lessee. In addition The IIFS can enter into a lease contract with a condition that the lease rental shall be Early Settlement The customer makes an early increased according to a specified proportion after a settlement and the IIFS gives rebate to customer due specified period like one year.

Takaful or Insurance Risk may appear The contract can be terminated by mutual consent. Shariah majeure, defect in the leased asset that materially impairs Compliance Risk is compliance with Shariah principles in its use, total destruction of the leased asset or when a terms of usage, operations, risk bearer and ownership termination option is stipulated in the contract. When the transfer non recognition of income.

The leased asset in Late payment, penalty charges or price increase is not the possession of the Lessee is held in a fiduciary allowed. As Muntahia Bittamleek contract or renegotiate the rental part of Credit Risk the Asset Repossession Risk and based on the prevailing market rate. If repossessed, the asset cannot be sold or leased asset. Rental There are two operational risks which are involved Acceleration Risk is related to inability to recover the with this stage of contract: The first is related to the claims against immediately due upon default by the Lessee loss of Lessee that refuses to pay for the damaged goods invested capital.

As part of Operational risk the Legal litigation cost, loss of claims. Risk Mitigation could be in risk and Business risk may emerge. Legal risk is the way that the IIFS lessor may appoint the Lessee as associated with IIFS taking legal action when the asset its purchasing agent to ensure that the goods purchased cannot be repossessed litigation cost, loss of claims.

However, Business Risk may rise as new leasing arrangement may this practice may lead to Business Risk and Shariah generate lower returns that the rental or may differ when Compliance Risk. In this case the lessor has to provide an the amount due low investment return.


The option to transfer of a tenant. Firstly, Residual Value Risk as component of Credit risk. Application of hedging credit enhancement Residual Value Risk may rise in the event that the techniques for Ijarah Muntahia Bittamleek customer decides not to proceed with the purchase; the IIFS will bear the potential loss due to the fair value of the Having identified the basic risks in Ijarah Muntahia asset fall below its residual value estimated at lease Bittamleek, the following section explores Shariah inception low fair value.

Secondly, Quality Risk as a part restrictions and credit enhancement techniques that may of Operational risk. Under Ijarah Muntahia Bittamleek fit within a Shariah framework. This general principle has led to certain period.

When the asset is permanently impaired and the restrictions on the use of capital protection devices in lessee cannot purchase the asset, the lessor may be Ijarah Muntahia Bittamleek transactions.

Performance or commercial risk guarantees Other types of Operational risks related to Ijarah Muntahia Bittamleek Islamic law permits a second party to guarantee the obligations of another party daman or kafala with three While a major operational risks exposure during the important limitations.

First and most important, the purchase and holding of the assets is elaborated in guarantee must be gratuitous, although the guarantor previous section, other operational risk aspects include may recover out of pocket expenses not including the the following: Second, the guarantor should be able to Shariah compliance risk SR ; the Islamic banks need cancel the guarantee at any time before the obligation to ensure that the asset will be used in a Shariah actually becomes due.

Third, the guarantee must concern compliant manner. Otherwise, it is exposed to non- the payment of an obligation rather than contingent recognition of the lease income as non-permissible.

Fiduciary risk FR ; major maintenance is the Notwithstanding these limitations, third-party responsibility of an Islamic bank as a lessor, as directed guarantees in the form of Islamic letters of credit or by AAOIFI Shariah standards In addition to that, it standby letters of credit are common in murabaha is the duty of the lessor to ensure that the usufruct is transactions.

In the context of Ijarah Muntahia Bittamleek, intact, and this is not possible unless the asset is a third-party guarantee is often structured as a put option maintained and kept safe so that the lessor may be obtained from the bank in exchange for payment of rent. If the lessee at some future time should cease making Thus, deficiencies in maintaining such responsibility can payments, either because it concludes that the be deemed to be sources of FR in Ijarah contract.

The of losses caused by PR, because the income generated bank, of course, would have the right to recover its losses from this, is not permissible from Shariah point of view. The bank in effect legal risk in respect of the enforcement of its contractual guarantees the payments to the lessor.

This may be the case which is typically added to the rental price of the particularly when the asset is a house or ijzrah that equipment and is not paid separately by the lessee. A guarantee will typically not be issued without consideration unless the guarantor is affiliated with the ultimate lessee. Thus while affiliate guarantees may be Protection against damage or loss acceptable, the ijarwh will often not have any parent which is ijarahh to make such a guaranty.

Third-party Insurance against contingent loss for example, a guarantees are usually in the form of a guarantee of guarantee against loss of an asset as a result of casualty principal investment or a certain return, both of which are is generally considered unacceptable in Islamic finance presumptively unacceptable in Islamic finance. Typical bittqmlik insurance the future, but now there are only a small number of should be unacceptable for these reasons. This is companies that issue residual value insurance, munfahiyah none particularly significant in the context of Ijarah Muntahia operate Islamically.

Bittamleek transactions, since ijara requires that the risk of damage or destruction of the asset must be borne by the lessor. In conventional finance, the risk of such losses Derivative contracts is placed upon the lessee, and the lessee is in turn required to cover these risks with insurance. However, The Shariah rules prohibiting gambling gharar and the other methods of transferring this risk exist.

Shariah does Islamic principles linking reward with risk establish not preclude the lessor from entering into a contract with significant barriers to the creation of Islamically a third-party to engage in servicing activities with respect acceptable derivatives.