Ijarah is an alternative to conventional leasing and is the ultimate form of interest-free asset-backed financing. It combines modern credit and financing techniques with traditional risk reward sharing concepts and business ethics.

Esmael said he expects the growth of the leasing industry to accelerate even further owing to the intensified demand for Shariah-compliant financial products and services, as the world searches for financial instruments characterised by justice, fairness and equity.

“Through Ijarah, Mauritius Leasing expresses its continuing commitment and innovative contribution to the Mauritian leasing industry. This new product will be accessible to both individual and corporate customers and will be applicable for medium to large ticket assets ranging from motor vehicles to sophisticated machinery,” he said.

Both Standard Ijarah (Operational Lease) and Ijarah Muntahia Bittamleek (finance lease) will be available for Mauritian customers from Friday, March 6. Technically, Ijarah is a form of rental arrangement intended for the use or acquisition of specific assets (plant & machinery, vehicles, or office equipment), the ownership of which remains with the lessor (Muaj’ir) with or without option of ownership. Ijarah is intended for the rental or acquisition of vehicles or capital equipment on a duration ranging on average from three to seven years.

According to Shari’ah, only goods and tangible assets may be the subject of an Ijarah or leasing agreement; therefore, no services maybe bundled into a lease contract (and should be dealt with separately). The type of equipment as well as its intended use must be encompassed by legitimate boundaries; hence, gambling equipment is disallowed along with alcohol related activities as well as equipment used in other prohibited activities.

During the period of the lease, the asset remains in the ownership of the lessor (ML) but its right to use is transferred to the lessee. After the expiry of the lease agreement, either this right goes back again to the lessor or the lessee is given the option to acquire the asset for continued use.

The Islamic finance industry, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world. One-off lease transactions were arranged by Chase Manhattan Bank and Citibank in the 1980s. In 2006, Etihad Airways also signed the terms of a USD 400 million agreement for an Islamic lease financing facility used to finance the airline`s acquisition of four Airbus A340-500 aircrafts and more recently, very large lease funds are being established to accommodate the requirements of national airlines to upgrade their fleets of planes. Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Extract from News On Sunday Newspaper