09-26-2003, 06:32 AM
It is a very interesting but confusing topic, i found something more on this topic so i would like to share with you all about lease financing, that how the leasing came into the pakistan,
In the early 1980s the Islamic Ideology Council gave a ruling that leasing is an Islamic mode of financing. In response to this the leasing sector started in Pakistan with the creation of NDLC (National Development Leasing Corporation).
The concept of leasing is such that the ownership of the asset is in the name of one entity who lends it to another entity in return for periodic rentals. This concept in itself is perfectly Islamic because in the earlier years people who used to own land, rented it out to others for agriculture and other purposes.
However, the problem starts when we analyze how the rent to be paid is determined in present-day leasing. A lease rental consists of two portions, one is the return of principal or the cost of the asset, the other is the profit on the transaction. The profit on the transaction is calculated using prevailing interest rates. This is different from the rental paid for a house, for example, which is determined by market forces and not by prevailing interest rates. This is where leasing looses its interest-free character.
This kind of a discrepancy is not just present in leasing alone, in our whole financial sector you will find transactions where the wording is such as to give the impression that it is a non-interest transaction but in actuality, in ESSENCE it is still interest. For example banks never charge INTEREST they charge MARKUP or RETURN or PROFIT. But what is it in real? What is the concept behind it? It is just a rent for using money-another name for INTEREST.
What do u think People????
S M R
Edited by - smraza on Sep 26 2003 013924 AM
In the early 1980s the Islamic Ideology Council gave a ruling that leasing is an Islamic mode of financing. In response to this the leasing sector started in Pakistan with the creation of NDLC (National Development Leasing Corporation).
The concept of leasing is such that the ownership of the asset is in the name of one entity who lends it to another entity in return for periodic rentals. This concept in itself is perfectly Islamic because in the earlier years people who used to own land, rented it out to others for agriculture and other purposes.
However, the problem starts when we analyze how the rent to be paid is determined in present-day leasing. A lease rental consists of two portions, one is the return of principal or the cost of the asset, the other is the profit on the transaction. The profit on the transaction is calculated using prevailing interest rates. This is different from the rental paid for a house, for example, which is determined by market forces and not by prevailing interest rates. This is where leasing looses its interest-free character.
This kind of a discrepancy is not just present in leasing alone, in our whole financial sector you will find transactions where the wording is such as to give the impression that it is a non-interest transaction but in actuality, in ESSENCE it is still interest. For example banks never charge INTEREST they charge MARKUP or RETURN or PROFIT. But what is it in real? What is the concept behind it? It is just a rent for using money-another name for INTEREST.
What do u think People????
S M R
Edited by - smraza on Sep 26 2003 013924 AM