Ijarah

Ijarah Ijarah means lease, rent or wage. Generally, Ijarah concept means selling benefit or use or service for a fixed price or wage. Under this concept, the cant makes available to the customer the use of service of assets / equipments such as plant, power automation, motor vehicle for a fixed geological period and price. Advantages Of Ijarah The following argon the advantages of Ijarah to lessee 1)Ijarah conserves capital as it may provide 100% financing. 2)Ijarah enables the Lessee to guard the use of the equipment on recompense of the first rental.This is important since it is the use (and non ownership)of the equipment that generates income. 3)Ijarah arrangements atomic number 18 flexible because the terms and rental provision may be tailored to suit the needs of the Lessee. Therefore, it aids corporate planning and budgeting. 4)Ijarah is not borrowing and is therefore not required to be disclosed as a liability in the Balance Sheet of the Lessee. Being an murder balance sheet financing, it is not included in the computation of power train ratios imposed by bankers.The borrowing capacity of the Lessee is therefore not impaired when leasing is resorted to as a mean of financing. 5)All payments of rentals are treated as payment of operating expenses and are therefore, fully tax-deductible. Leasing therefore offers tax-advantages to profit making concerns. 6)There are many types of equipment, which becomes obsolete before the end of its actual economic life. This is particularly true in high technology equipment like computers.Thus the risk is passed onto the Lessor who willing undoubtedly charge a insurance premium into the lease rate to give for the risk. A Lessee may be willing to pay the said premium as an insurance against obsolescence. 7)If the equipment used is for a relatively short period of time, it may be more profitable to lease than to buy. 8)If the equipment is used for a short duration and the equipment has a very poor second subm it value (resale value), leasing would be the best method for acquisition