Islamic Finance - Ensuring the Viability of the Islamic product of Choice
The transfer of the title must be carried out independently of the Ijarah contract in order to make these two contracts into a workable and legal product. The transfer of title will not be impacted by the simple act of signing the Ijarah contract, unlike with a traditional hire buy. When the transfer of title is desired, another contract must be signed. In addition, a sale undertaking, or Wa'd (unilateral pledge by one party to sell), is included to make this product marketable and equivalent to a traditional hire buy agreement. When the lessee/user exercises an option, the lessor/owner agrees to sell the leased vehicle to the lessee. This is done in order to preserve the role of "option" in traditional hire buy. The financier/owner will be compelled to sell the leased asset as and when the customer/user requests it under a selling undertaking. Additionally, if he doesn't make the agreed-upon rental payments, the customer/user will grant his Wa'd to buy the leased asset back. He is bound by this Wa'd. Ijarah muntahia bi tamleek (lease ending with ownership) or Ijarah Thumma al-Bay (lease followed by a sale), also known as Islamic hire and purchase, is an example of an Islamic financial product that demonstrates how traditional contracts can be linked to more advanced and modern Islamic financial products. Simple contracts include those for a lease, sale, or commitment. However, when they are merged for a specific purpose, they create a new product that is more pertinent to the present market and helps buyers, in this case, buy vehicles in accordance with Shari'ah principles.
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