This hire purchase service can be practiced either in the conventional way or in the Islamic way whereby we decide

to focus on Islamic hire purchase. In essence, the features of both products are quite similar. The differences between the two are as noted below: AITAB Car Financing follows the Shariah principle as well as the spirit of the HPA while conventional hire purchase follows only the HPA. The financing for AITAB is sourced from permissible (Halal) funds while the conventional hire purchase has no limitation of its sources funds. Different usage of terms such as: Conventional Islamic Loan Financing Interest Rate Profit Rate Hiring Charges Mark-up Late Payment Interest Late Payment Charges There are two agreements involved under AITAB namely: (i) Al-Ijarah Contract (hiring agreement); and (ii) Al-Bai' Contract (purchasing agreement) whereas Conventional HP uses only one agreement . A minimal late payment fee of 1.00% p.a. of the installment due will be imposed for customer who did not pay promptly while conventional hire purchase charged a fee of 8.00% p.a. of the installment due. However, some finance companies do not impose this condition. They charged administrative charges for all the fees incurred to normalize from accounts in arrears. In addition, some finance company imposed both fees to mirror the actual losses when hirers failed in their obligation to pay the monthly installments.

Under AITAB, customer has to sign the 'Aqad Letter (Acceptance Letter) to denote the offer and acceptance of transactions while conventional hire purchase does not have such agreement. An Islamic Hire Purchase Financing scheme is a car financing facility, which adopts the Shariah concept of Al-Ijarah Thumma Al-Bai' (AITAB). The term "Al-Ijarah" means hire, lease or rent whereas "Al-Bai'" means purchase. Under the Shariah principle, Al-Ijarah Thumma Al-Bai' (AITAB) refers to 2 contracts undertaken separately which are Al-Ijarah (hiring contract) and Al-Bai (purchase contract). Dealer or seller sells the goods to the finance company, which becomes the owner, in return for payment, which is cash price less deposit paid by hirer for the goods under AITAB agreement. Upon settlement of the hire rentals, the Purchase Agreement will be executed automatically, thus transferring the ownership of the vehicle from the finance company to the hirer. It is designed to cater for the needs of both Muslim as well as non-Muslim customers. AITAB financing enables Muslims to perform their financial transaction according to the principle of Shariah and in line with their religious beliefs. In addition, the late payment charge is slightly lower compared to conventional hire purchase. Other than that, the features and benefits of AITAB are as good as what are available under conventional hire purchase. As such, customers do not lose out when taking up AITAB Car Financing scheme. Modus operandi in this Islamic hire purchase is when under the Al-Ijarah contract, the hirer (customer) hires the goods from the owner (finance company) at an agreed rental over a specified period. Upon expiry of the hiring period, the hirer enters into the Al-Bai' contract to purchase the goods from the owner at an agreed price. During the period of the agreement, the finance company owns the vehicle. Upon settlement of the hire rentals, the purchase agreement will be executed automatically, thus transferring the ownership of the vehicle from the finance company to the hirer. However, in the event of the customer failing to perform his obligation to service the hire rental or performs otherwise from the terms and conditions stated in the agreement, the finance company has the right to exercise reasonable actions to mitigate its losses. Under AITAB Financing the purpose of financing is of paramount importance and it must be clearly stated and revealed to ensure customer whose income or nature of business derived from a forbidden source under the eyes of the Shariah does not take up the facility, such as: (i) Customers who are selling alcohol, illegal drugs etc. (ii) Customers who are operating a gambling business. (iii) Customers who are involved in immoral business such as prostitution. Customer will be entitled for a rebate for any early settlement cases. The calculation of rebate follows the standard formula accorded under the HPA. The rebate is not given in cash but it will reduce the balance outstanding. The settlement amount is the net figure after deducting the rebate. A minimal late payment fee of 1.00% p.a. of the installment due will be imposed for customer who did not pay promptly while conventional hire purchase charged a fee of 8.00% p.a. of the installment due. However, some finance companies did not impose this condition. They charged administrative charges for all the fees incurred to normalize from

accounts in arrears. In addition, some finance company imposed both fees to mirror the actual losses when hirers failed in their obligation to pay the monthly installments. Normally, the minimum period of financing is 1 year (12 months) and a maximum financing is 7 years (84 months). However, period of financing used by finance companies is determined based on various factors such as: Type of cars i.e. new or second-hand Age of vehicle Customer profiles Income exposure Market Condition Since AITAB follows the spirit of HPA, the maximum margin of financing allowed is 90%. Again, various factors are being used to determine the maximum margin of financing such as: Type of cars i.e. new or second-hand Age of vehicle Customer profiles Income exposure Market Condition The HPA stipulates the specific course of actions available for owner of the vehicle (finance company) to take for certain scenarios. Under AITAB Financing, the same recourse will be taken, like issuing out repossession order, repossessing the car, auctioning the car or taking legal action against the hirer. These actions are allowed under Shariah principle.