Ijara - Benefits to Airline Industry - ijaraCDC

Ijara – Benefits to Airline Industry

What are the Benefits of Ijara Loans for the Airline Industry?

According to Standard & Poor’s, in the last decade so, Islamic banking practices have grown at a steady rate of 10-15% and in 2009, the worth of Islamic financial products all around the world was a staggering $500 billion and still growing. The bulk of these financial products is made up by ijara loans and the prevalence and popularity of this financing method has transcended the borders of Islamic countries and spread to the United States, the UK, and other continental European countries. So, it is only natural that both Islamic scholars and financial analysts would be curious to know the benefits that make ijara loans so appealing to a diverse group of industries. They are probably most interested to learn about the benefits of ijara loans for the airline industry.

This interest in the benefits of ijara loans for the airline industry has been upped by the fact that Emirates Airline, one of the premier airline companies in the world and operating hundreds of flights every day to all corners of the world, regularly seeks ijara loans to expand their fleet. So the benefits of ijara loans for the airline industry must indeed be quite lucrative to encourage organizations like the Emirates to carry on with them.

A study of the benefits of ijara loans for the airline industry must be undertaken from two different perspectives—the ethical and the commercial. Some benefits of ijara loans for the airline industry also stem from the peculiar nature of these loans that enable ease of use.

The Benefits of Ijara Loans for the Airline Industry: The Ethical Angle

Before delving into the benefits of ijara loans for the airline industry from an ethical viewpoint, it is worthwhile to understand what drives ijara loans.

Like all other Islamic banking products, ijara loans too are based on the principles of the Sharia. Sharia is a body of Islamic law that lays down the code of conduct for Muslims to follow in their personal and professional lives. Sharia guidelines are based on the principles of justice and partnership; some of these pertaining to financial transactions are listed below:

  • Charging and receiving of interest as part of financial transactions is forbidden.
  • Gambling and engaging in speculative or extremely risky activities are barred.
  • The contract signed between the parties involved should not be vague or ambiguous while stating the terms, conditions, rights, and obligations binding on each party.

The benefits of ijara loans for the airline industry stem from the fact that the working principles of these loans are rooted in the afore-mentioned Sharia laws. For instance, these loans enable Islamic airline companies to seek funds to finance their business ventures without having to violate the rules of the Sharia. Furthermore, compliance to Sharia laws, make these loans transparent, fair, and consistent in their approach.

These benefits of ijara loans for the airline industry have ensured that airline companies around the world have been able to fund their expansion plans even during the difficult times of recession.

The Benefits of Ijara Loans for the Airline Industry: The Commercial Angle

The benefits of ijara loans for the airline industry on this count arise from the aspect of fund diversification and the resultant flexibility that these financial products accord to the parties involved. For instance, the simple ijara or the operating lease allows an airline company to just enjoy the benefits from using a piece of asset without having to buy it. The right of ownership rests with the lessor, which may be a bank or any other Islamic financial institution and the lessee just has to pay a fixed rental amount at pre-determined intervals of time.

There are other forms of ijara loans whereby the lessee can exercise his right to buy the leased asset at the end of the leasing period or after he has made all the rental payments. This enables an airline company to acquire an asset even if it does not possess the funds to buy it outright. What is more, the company can even start reaping benefits from the use of the asset right after making the first rental payment.

The above are only some of the benefits of  ijara loans for the airline industry. But these benefits of ijara loans for the airline industry suffice to show how these financial products have sustained an industry that was one of the hardest-hit during the recession – which is ongoing.