Lease contract in Malaysia Essay
Lease contract in Malaysia, 494 words essay example
The Hire-Purchase Act 1967 clearly indicate that hire purchase is a contract of lease with an option to purchase. Lease contract with an option to purchase appear to be the same with Islamic lease contract of Al-Ijarah Muntahiiyah Bit-Tamlik (IMBT). In order to be more specific with Malaysian Islamic financing requirement and to protect the right of both parties, lease contract ending with sale and transfer of ownership, also known as Al-Ijarah Thumma Al-Bay' (AITAB) is more acceptable in Malaysia.
Khir, Gupta and Shanmugam (2008) define AITAB as to lease or hire or rent ending with purchase. The term leasing (Ijarah) here is a lease contract that enables customer to obtain the right to enjoy the benefit (usufruct) of the specified vehicle owned by the financing company for an agreed period against an agreed rental payment before the full settlement being done.
Even the development of Islamic Hire Purchase (IHP) by Islamic Bankers is since 1994, it is still one of the contemporary innovative products which is designed to meet the public demand. In Malaysia, AITAB is popularly recognised and managed to secure long-term competitiveness in the financial market as it is less complicated. It can be utilised to finance a wide range of assets, either for individual or corporate customers.
The only difference between AITAB and IMBT is that upon fully settlement of the contract, the legal title of the asset is transferred to the lessee through the contract of sale for AITAB and it is transferred to the lessee whether through gift, token price, equivalent price or gradual transfer for IMBT. (Mohd Herwan & Mohd Hawari, 2011)
Aisyah et al, (2014), were looking for differences between the theory of AITAB facility principle and the real practiced by Affin Islamic Bank Bhd. They were also looking for the similarities between AITAB and conventional hire-purchase due to in practice under the same Malaysia Hire Purchase Act 1967. They managed to identify eight similarities and five differences.
Fahad, (2012), highlighted the weakness in IMBT contract and identify the misuses of the system. His study raise flag on any future losses due to loopholes in the structure of Ijarah system applied. This study acts as an eye opener for more research on vehicle leasing applying IMBT contract. He suggest that Islamic bankers should consider the amount of down payment requested significantly besides the fulfilment of other criteria. Even this considered as one isolated case as it is reported in one of the Islamic banks in Pakistan, and studied by only one Shariah scholar, it is still of great importance as it can raise flags on loopholes and prompt Islamic banks to rectify the structure of their vehicle Ijarah contracts.
Hashim et al, (2012), have the objective to examine AITAB operation and its related issues as practiced in Malaysia and to rectify the fairness of accounting treatment of AITAB contract implemented by all Malaysian Islamic Bank. They found out that accounting treatments of AITAB contract fail to differentiate from conventional hire-purchase when there is no