Hire-Purchase (Leasing) in Islamic Finance

UAE Laws and Islamic Finance

 Madrid at Night

Thoughts from Iraj Toutounchian’s Islamic Money & Banking, Integrating Money in Capital Theory

A hire-purchase agreement provides the hirer with the option to become the owner of the item at the end of the tenure of the hire provided that the hirer has fulfilled all the conditions in the agreement.  Under its terms, a business entity or individual may request the bank to purchase capital goods such as equipment, tools or machinery and rent them to him or her.  The rent is charged from the date the lessee takes delivery of the goods and the duration of the lease is determined.  In cases of non-payment of installments, the bank (lessor) has recourse to the leased asset.  Under the contract, the lessee is obliged to pay a periodical rental charge, which normally exceeds the depreciation value of the asset.  This can be  a fixed amount for the whole…

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