Islamic Finance Concepts

Question:

I live in Saudi Arabia and my concern is,if i can buy car on lease or on installments from company it self or by third party.

Please clear the concept of installements and if it is permisible in Islam.

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Islamic Banks offer a range of Shariah products facilitating equity purchases such as vehicles, dwellings, manufacturing plants, etc.

Some of the most common car financing products are:

1. “Ijara Wa Iqtina” (Rent to Buy) facility where a prospective client may hire a vehicle/car over a period of time and thereafter receive an option to purchase the car once of for a minimal sum of money.
2. Murabaha “Cost plus Financing” facility where the client purchases equity from a third party while receiving the necessary finance from the Islamic Bank. This facility entails a complex structure of seven different stages such as purchase requisition, MMFA “Master Murabaha Facility Agreement”, Agency (Specific/Global) Agreement, etc.
3. Bay al-Ta’jeel “Sale on deferred payment” facility where the bank sells the equity to the client on the basis of periodic installments for a fixed tenure.
4. Ijarah “Renting/Hiring” facility where the Islamic Bank hires out the equity (car) to the client without the option of eventual purchase. The client merely hires the equity from the bank.

We advise you to obtain the contractual agreements of the product you wish to purchase and submit it to us for our analysis and review.

And Allah Ta’āla Knows Best                                       

Checked and approved by,

Mufti Ebrahim Desai