Al Ijarah Thumma Al Bai'

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INCEIF

The Global University in Islamic Finance Kuala Lumpur, Malaysia (CIFP)

AL IJARAH THUMMA AL BAI’ (AITAB)
(SH1003)
Semester September 2012

Name: NORHADIYATUL AKMA BINTI JAAFAR
Student No: 1200335

TABLE OF CONTENTS

Abstract.....................................................................................................................................2

Key Terms of the Paper.............................................................................................................2

Introduction...............................................................................................................................3

1.0 Concept of AITAB .............................................................................................................4 1.01 What is Al-Ijarah, Its Conditions and Salient Features of Ijarah Contract .......4 1.1 Overview of AITAB Development in Malaysia.................................................................6 1.2 Mode of Operation …………...……………………………………….………….............6 1.3 A Comparison with Conventional Hire Purchase In the Malaysian Context.....................8 1.31Comparative Features from Shari'ah Perspective ............................................8 1.32Comparative Features from Practical Perspective .........................................10

1.4 Issues In the Operation of Islamic Hire Purchase……………………………………….12

1.5 Challenges in the Operation of AITAB............................................................................. 22

Concluding Remarks ...............................................................................................................25

Bibliography.............................................................................................................................27

Appendix I ...............................................................................................................................28 Appendix II ..............................................................................................................................29

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ABSTRACT

Islamic hire-purchase is one of the contemporary innovative products which is designed to meet the public demand at the same time securing long-term competitiveness in the financial market. In Malaysia, Islamic hire purchase is popularly recognised as Al-Ijarah Thumma Al-Bai’ (AITAB), which is utilised to finance a wide range of assets, either for individual or corporate customers. Since its first inception more than 10 years ago, AITAB has grown in popularity and continuously expanded partly due to the high demand by customers. Notwithstanding its popularity, AITAB is not without criticism especially on issues pertaining to its legitimacy and validity. Sceptics may go further to argue that AITAB is simply a carbon copy of conventional hire-purchase and hence not able to provide a satisfactory and viable alternative to conventional products. This paper, therefore, attempts to address the differences between conventional hire-purchase, some basic issues in the concept and implementation of Islamic hire purchase in the Malaysian context from jurist, legal, and practical perspectives as well as and the challenges. It is hoped that it will highlight pertinent issues in Islamic hire-purchase practices to contribute toward better implementation of Islamic hire purchase in dual banking systems.

KEY TERMS OF THIS PAPER

Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) Al-Ijarah Thumma Al-Bay’ (AITAB)
Islamic Financial Institutions (IFIs)
Ijarah
Islamic Hire-Purchase
Islamic Banking

INTRODUCTION

Malaysia, being one of the first countries to promote Islamic finance, has experienced a dual banking system whereby a full-fledged Islamic banking system operates on...
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