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How to implement ijarah contract in agriculture financing (500 words)

How to implement ijarah contract in agriculture financing (500 words)

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Expert Solution

Ijarah contract is a contract in which the owner of an asset transfers its legal right to use to another person for an agreed period for an agreed consideration. It is suitable for long term financing and has flexibility to change the rental as per rules of Ijarah.

One of the benefits of Ijara loans for the agricultural sector is that the farmer or the entrepreneur can lease the machinery instead of purchasing it for a fixed rental payment in return at pre-determined intervals of time. The farmer can enjoy the right of usage right after making the first payment. Thus he can use the asset for productive purposes without bearing the risks and responsibilities of ownership.

Procedure for implementation of Ijarah contract

  1. Signing of undertaking to Ijarah according to which the client take the asset on lease.
  2. The Islamic Banking Institutions (IBI) and the client may enter into an agency agreement, if required
  3. After purchasing of the asset, the IBI and client execute an Ijarah Agreement. The agreement will contain the particulars of rental payments and tenure of the contract
  4. The IBI, then delivers the asset to the client.
  5. At the end of lease period IBI and the client enter into a separate agreement of sale. This agreement if for selling the leased asset to the client against an agreed price

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