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Resolution: Finance Lease and Operating Lease (Securities Commission Malaysia)


The SAC, at its fourteenth meeting on 7 May 1998 resolved that rental payments from finance leases and operating leases are Syariah compliant products if they are free of any element of penalty.


Finance lease facilities are usually given by finance companies registered with Bank Negara Malaysia. Most of these companies are subsidiaries of financial institutions. There are also other non-finance lease companies which offer leasing facilities commonly known as operating lease. Operating lease services are slightly different from finance lease services in that an operating lease does not offer an option to customers to buy the leased assets at the end of the period.

In calculating the lease rental, the approach adopted by the finance leasing and operating leasing companies is similar, that is based on the value of asset being financed, rate of charge or returns and the period of financing.

In general, the penalty rate on late payment is high. This payment charge is imposed to discourage late payment by customers as well as to prevent leasing companies from being exposed to losses due to opportunity loss.


From research carried out, the SAC resolved that finance lease and operating lease are permissible. This is based on the following:

The Ijarah Principle

The mechanisms that are almost similar to finance leases and operating leases in daily practices are ijarah and Ijarah thumma bai'. Other terms used are ijarah wa iqtina' and ijarah muntahiyah bi tamlik.

The concept for finance and operating leases without the late payment clause is no different from ijarah and ijarah thumma bai'. In an operating lease, the lessee has the right in utilising the assets within a specific period as agreed to in the contract. As a consumer of the assets he is required to pay for the consumption within a certain period, whereas ownership of the assets is still under the jurisdiction of the leasing companies.

The principle is similar to ijarah as the assets can benefit the lessee (musta'jir (within a certain period for a certain sum agreed upon. Meanwhile, the assets still belong to the original owner (mu'jir .(The musta'jir only has the right to benefit from the assets. However, the Islamic jurists still include ijarah in the category of buying and selling (bai'). The item traded is a benefit which is the right to use the asset. It is to be understood that Islamic jurisprudence recognises the right as mal.

The basis of finance lease is similar to ijarah thumma bai'. This mechanism is a development of the principle of ijarah which is in the nominee contract as it is more of a feature of financing. Unlike the first instrument, it gives a choice to the musta'jir at the end of the ijarah period whether to buy the asset or to dispose of it. If the musta'jir chooses to buy the asset, a new contract will be drawn up.

The SAC then resolved that finance and operating lease activities without the penalty clause do not contradict Syariah as they are similar to our daily practices of ijarah and ijarah thumma bai'¬.


Regarding the penalty on late payment of finance lease and operating lease, the SAC at its twentieth meeting on 14 July 1999 had agreed to accept the resolution of the SAC of Bank Negara Malaysia. The resolution allowed only one per cent penalty rate to be imposed on late payment and the calculation of the penalty is not based on compounded value.

Based on the resolution, the SAC resolved to take into account the difference between penalty rates imposed by a company that provides finance lease and operating lease facilities with a permitted penalty rate of one per cent.

Country Of Origin : Malaysia
State : Kuala Lumpur
Fatawa Issuing Body : Securities Commission
Author/Scholar : Syariah Advisory Council
Date Of Issue : October 2003
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