An Exploratory Study of Car Ijarah Practices in Islamic Banks of Pakistan

Islamic banking is the system where all rules and regulations of the banking system are governed by Shariah rules, providing collective impartiality and fairness, while gratifying the financial requirements of the community and maintaining high principles of moral values, simplicity, and wisdom of accountability. As we can see in the past years, there is an escalation in competition and emphasis on ethics, all across the globe, therefore, Islamic products are attracting not only Muslims but non- Muslims as well. Moreover, the shariah rules provide collective impartiality and fairness, while gratifying the financial requirements of the community. The main objective of this study is to review the Car Ijarah, in the light of Shariah principles and its practical implications by the Islamic banks in Pakistan. In this study, the survey research method is used for collecting the data. In this regard, Islamic banking personnel at a managerial level were asked to fill the questionnaires. A detailed analysis of the lease documents of each bank was also done. This study highlights that most of the conditions in Ijarah agreements in Pakistani Islamic banks are according to Shariah laws such as lease rentals starts at the delivery of the vehicle, customers are liable to pay any loss due to their negligence and wear and tear. Whereas, bank is liable to pay any loss due to the natural disaster. Also, banks have opted to charge variable lease rentals in long-term lease as well as transfer of ownership, after the completion of lease term, is in the hands of bank, etc. At the same time this study evidently identifies the deficiencies in existing Ijarah products where they are simply not following Shariah guidelines for example expenses related to purchase are borne by lessee. Secondly, most of the banks have no right to cancel the lease agreement at any time if the lessee has violated lease agreement. Insurance expense (Takaful) is also born by lessee