The Critique Of Islamic Hire Purchase Instrument And its Improvement

Islamic finance has the same aim as conventional finance which is to gain profit through financial activities. What distinguishes Islamic finance against conventional finance is Islamic financial activities must be in line with Shari'ah (Islamic Law). Financing in Islamic finance is divided into two categories: equity financing and loan financing. For loan financing, Islamic hire purchase is a contract widely used in Malaysia after Bai' Bithaman Ajil. Islamic hire-purchase is classified into two types based on ownership transferring method; it is named Ijarah wa-Iqtina and Ijarah Muntahia Bittamleek. The sole Islamic hire purchase instrument in Malaysia is known as Ijarah Thumma al-Bai' (AITAB) and is under Ijarah wa-Iqtina classification. Based on Shari'ah, Islamic hire purchase is bound to certain conditions. However, there lacks an Islamic framework within the instrument caused by less attention put onto the Shari'ah rules and regulations, and the formulation used nowadays which mer