Ethica Institute of Islamic Finance™

How is an Ijarah secured?

The promise of the lessee to enter into a contract after the arrival of the asset is secured by the payment of a deposit known as the Haamish Jiddiah. The Haamish Jiddiah is either set aside or deposited in a profit bearing account based on a Musharakah or a Mudarabah. The profit earned on it is given to the lessee. If the client backs out from entering a lease contract, the bank may make up for its loss by entering into a new lease with another party or by selling the purchased asset. If a new lease is established with another party, the difference between the cost of the asset and the sum of all the rentals with the new client are paid by the former lessee. If the asset is sold in the market, the lessee is expected to pay for the difference between the cost of acquiring the asset and its market price. Furthermore, it is mandatory for the lessor to possess the asset or the usufruct of the asset in order to execute an Ijarah.Ifthe bank is not in possession of the asset or its usufruct required on lease, it must acquire it from a third party. The insurance of leased goods is an ownership related cost and is the lessor's liability throughout the period of the contract.

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