Factor
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Conventional lease
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Ijara
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Rental payment
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Based on applicable interest rate and principle amount invested in the asset and the lease period
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Agreed rental payment as in the contract, based on the amount invested in the asset, the rental value of the asset and the profit margin of the bank
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Rental recovery in case of theft and los
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If the leased asset is stolen or destroyed, the financier continues to charge lease rental till the settlement of the insurance claim
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In Shariah rulings, the lease rental is directly related to the usage of the asset and if the asset is stolen or destroyed, or temporarily out of order, rental cannot be charged
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Late payment penalty
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Penalty interest charged by calculating original payment and the default interest on the due amount and an additional penalty could be applied
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Fixed amount could be charged as penalty, but bank cannot benefit and it is given to a charitable fund, often managed by the bank
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Transfer of ownership
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Happens automatically in financial lease
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Separate sales contract needs to be concluded
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