would proceed to use the item according to the term of the mutually
agreed-upon leasing contract. The client pays a monthly or periodic lease
payment at a market rate that is marked to market and has been agreed
upon between the RF finance company (lessor) and the client (lessee).The fundamental question here is the rate at which the asset is leased. In
many cases, the ‘‘Islamic’’ banking officer would quote the interest rate of
the day as an agreed-upon lease rate. This approach presents a serious prob-
lem with Shari’aa. The lease quote used must correspond to the actual mar-
ket lease rate as researched by both parties. These and other issues will be
discussed in greater detail in Chapter 10.
In this context there are two types of riba-based leasing available in the
market. These are:
1.Rental or Lease (ijarah):This finance method offers pure leasing of
assets. The asset is leased for a specific period of time and then returned
to the title holder. These leases are similar to leasing an automobile for
two or three years then returning it to the owner. However, it is interest-
ing to note that in today’s leasing practices, the monthly lease payment
is based on a projected value of the item at the end of the lease term (like
the projected value of a car, say, after three years). This practice is not
acceptable in Judeo-Christian-Islamic Law, because no one can project
the future market price of an item; only God knows the future. That is
why the price at the end of the lease has to be marked to the active live
market at that time.
2.Lease-To-Own (ijarah-wa-imtilakorijarah-wa-iqtinaa):In this method
of leasing, the user and title owner agree to a monthly payment that
consists of two parts. One part has to do with the gradual purchase
of the property by the lessee, and the other part has to do with the rental
of either the money, as in the riba-based financial leases, or the rental of
the actual asset at the prevailing market rate, as in RF leasing.This model will be discussed in detail in Chapter 10, and a real case
application will be presented in Chapter 14.
Joint Venture (Musharaka) Direct Investment/
Equity Ownership or Partnership
In this model, the RF financial institution or its investment subsidiary enters
into a direct investment with the customer in the form of equity ownership.
Profit or loss would be assigned to each joint venture according to a well-
defined distribution formula.
58 THE ART OF ISLAMIC BANKING AND FINANCE