Ijarah Muntahia Bittamleek (lease to own) is a mode of finance which is adopted by Islamic Financial Institutions. It is a contract where the Islamic Financial Institution finances the property or equipments against mutual agreed rental installments that consists of profit and principle, where profit can be fixed or floated (variable) as agreed. At the end of the lease period ownership of property is transferred to the client with the last payment.
Ijarah Muntahia Bittamleek can be structured by two ways:
1. The promise of the assigned Agent.
2. Sale of beneficial right and lease back.
What is the promise to lease concept?
1. The MCCA appoints the client as an agent on behalf of MCCA® towards purchasing the property;
2. Agent promises to lease to own the property from MCCA;
3. The MCCA promises to lease the property to the agent so that the agent can own the property based on Ijara Muntahia Bittamleek;
4. Agency is built through Memorandum of Understanding;
Steps of the promise to lease:
1. Potential client first applies for finance
2. MCCA assesses the client’s (based on the criteria set by MCCA or the Funder) suitability for the product, and if eligible, provides a conditional approval of funding
3. Client will then search for a property within the approved funding amount and propose to MCCA to buy the property
4. MCCA evaluates the property and provides an approval subject to satisfactory evaluation, then assigns the client as an agent of MCCA
5. Upon approval agent finalises contract of sale with vendor through Real Estate Agent
6. Agent signs the agency contract with a promise to lease to own the property under the Tamleek contract according to Ijarah Muntahia Bittamleek (lease to own) with agreed rental instalments that consists of principle and profit, where the profit rate is variable or fixed for up to five years as agreed.
7. At the settlement MCCA becomes the owner of the property and permit the agent register his/her name on the title.
8. Upon payment of the moneys financed by MCCA, the agent re-assumes the rights from MCCA through the last rental instalment, where he/she become the full owner of the property.