9

Let's imagine this as follows:

A is in need of $10,000 cash urgently and finds no lender. He owns a house, which he had rented out to someone for $500 a month. A, driven by the need of cash wants to lease it out. Now, if he leases it out to B for $10,000 for a period of 1 year, he has to part with the monthly rent he used to get. After the lease period, A returns $10,000 and frees his house. Meanwhile, B saved $6,000 ($500X12).

If we look from banking perspective, B is a banker and has a fixed deposit of $10,000 with A, he gets a monthly interest of $500 in the form of rent saving. On the other hand A can be treated as a borrower who has borrowed $10,000 from a lender B for a monthly interest of $500 which he pays as a deprival of rent.

This is how leasing goes on. Most importantly there is interest involved here.

While some others, including scholars argue that leasing is a process in which A borrows money from B and gives his property in return as surety, which upon return of the lease money, should be returned back. They also argue that since the lessor(A) can use the money independently (and shares no profit gained) and the lessee(B) has no command over it, it is rightful for a lessee to use the leased property and share no profit (the rental savings) gained out of it.

Well, that argument may sound okay, but two questions stand erect.

  1. If Interest is not involved, then why did the rental money of $6,000 which A was deprived of through a period of one year, move to B?
  2. What do Qur'an and Ahadith have to say about leasing?

Jazaakallah...

Tabrez Ahmed
  • 4,920
  • 11
  • 42
  • 71
  • Maybe I'm missing something here. It seems like there's no interest. From B's perspective, he bought something, and now he's getting an ROI. – ashes999 Jun 26 '12 at 17:26
  • @ashes999, didn't get you. – Tabrez Ahmed Jun 26 '12 at 17:31
  • where's the interest? I don't get it. Maybe you need to add some dollar values to your example. – ashes999 Jun 26 '12 at 17:32
  • @ashes999, I have further modified the question... Hope that helps – Tabrez Ahmed Jun 26 '12 at 18:11
  • 2
    Okay, thanks, I understand now. +1 good question. But your title is a bit misleading; this is not really straight-up leasing, but lend-and-lease. – ashes999 Jun 26 '12 at 18:11
  • @ashes999, But in any kind of leasing, this is what goes on... the rental money moves to the lessee.... hope another modification I have made, helps..... – Tabrez Ahmed Jun 26 '12 at 18:19
  • 1
    this is not like, say, car leasing. So I think the title could use more qualification. That's all. – ashes999 Jun 26 '12 at 18:21
  • @TabrezAhmed: That's not true. People often lease things that are owned outright, so there is no loan involved. – Flimzy Jun 26 '12 at 18:22
  • @Flimzy, then how did $6,000 move to B? – Tabrez Ahmed Jun 26 '12 at 18:27
  • @ashes999, no matter what is leased, if the lessor pays back exact lease amount (without deduction), he is losing what he could have earned by renting it. He is losing out to the lessee.... – Tabrez Ahmed Jun 26 '12 at 18:31
  • 1
    @TabrezAhmed: You talk like leasing and renting are different things. They are not. A lease is simply a contract to rent something for a period of time. See the definition. – Flimzy Jun 26 '12 at 18:43
  • 1
    The question does not describe a lease scenario at all. It simply describes a cash loan with collateral, where use of the collateral is granted in lieu of interest paid on the loan. – Flimzy Jun 26 '12 at 19:06
  • Well I guess one could call it a lease, in the sense that the rent paid for the lease is exactly equal to the interest paid on the loan. – Flimzy Jun 26 '12 at 19:09
  • @Flimzy, I realise the mistake. We Indians are forced to believe that rental agreement is different than lease. Here, the common unspecialized people think that lease means high initial deposit (as in my question's example) and zero rent and rental agreement means low initial deposit (by the lessee) and nominal monthly rent... I was unaware of this misconception untill you pointed out:-) thanks:-) . . . Now the question's title seems ambiguous. Please help me reframe it. . . – Tabrez Ahmed Jun 27 '12 at 03:46
  • @TabrezAhmed: Someone with more familiarity with that financial arrangement will have to re-title it... I don't know of a name for that sort of contract. But there probably is one. – Flimzy Jun 27 '12 at 03:48
  • @flimzy, let us continue this discussion in chat – Tabrez Ahmed Jun 27 '12 at 03:53
  • @TabrezAhmed Is this like two contracts in one ? – Abdullah Apr 22 '13 at 17:22

2 Answers2

2

There is a very thin line between "trade and usury". To understand this we must understand the definition of both and also understand why Islam forbade usury (interest).

In trade, both (or all) parties share the risk of market fluctuation.

In usury, only the person who takes the loan bears the risk of fluctuation.

Islam forbade usury becoz.. in usury one party gets bonded and oppressed while the other makes more money irrespective of the condition of the market. In my opinion, the current banking is a bondage becoz either you work hard all month or may not have job, but still your mortgage has to be paid.

Example: After the 2008 financial meltdown many houses were not even worth what was owed after years of payment, the banks were "immune" to the fluctuation and would still receive their principle + interest.

Based on your example above,

a) What if there is no tenant in the house for 5 months of the 12 months?

b) What if there are repairs to be done during the 12 months?

If the risk during 1 year would be B's that means B has "rented the renting business" from A....which would be allowed.

If the risk of these still is on A, then it would be considered interest since B is free of market conditions.

islam101
  • 3,590
  • 1
  • 15
  • 16
0

A is collecting rent and paying interest (Riba).

B is collecting interest (Riba) and paying rent.

Rent is paid as compensation for the use of property.

Interest, riba, is paid as a fixed compensation for the use of money.

B is paying rent of $500 every month (whether or not he cuts a check).

A is paying interest of $500 every month.

The fact that the rent that is being paid is equal to the interest that is being received doesn't change anything.

This is a forbidden contract and Allah knows best.

Bleeding Fingers
  • 3,224
  • 7
  • 33
  • 59
Rakaan Kayali
  • 75
  • 4