(b) ‘Conventional’ Finance providers make a profit based upon the lower interest they pay on
customer deposits & the higher interest they charge on money loaned out to customers.
Making profits from lending alone & charging of interest is forbidden under Sharia’s law. Islamic
finance transactions are based upon the concept of sharing risk & rewards between the investor &
user of the funds – wealth should be generated via trade or investments. The Islamic finance
provider’s profitability is therefore closely tied to that of the client.
Whether an operating or finance transaction, in Ijara the lessor is still the owner of the asset &
incurs the risk of ownership. This means that the lessor will be responsible for major maintenance
& insurance which is different from a conventional finance lease. |
