The Application Of Rule 78 In Vehicle Financing By Islamic Banks In Malaysia

by Assoc. Prof. Dr. Omaima Eltahir Babikir Mohamed and Assoc. Prof. Dr. Mohd Yaziz Mohd Isa

Arabian Journal Business Management Review (Kuwait Chapter), (2017) Vol. 6 (9)

Abstract

Al-Ijarah Thumma al-Bay’ (AITAB) is an innovative product designed to vehicle financing. Since its inception, AITAB has been a popular product due to the heightened demand by customers. Although AITAB is popular, it is not without condemn especially on the issue of using Rule 78, which is similar to conventional Hire-Purchase practise.

This paper, attempts to address the issue of using Rule 78 which affects the customers in the case of default. A case study is used to compare the use of Rule 78 and simple profit rate methods on repaying the principal amount and the profit rate by the customer.

The discussion is based upon the case on vehicle financing for three years and the impact on the defaulter on the thirteenth month of financing. The result shows the customer pays higher amount in the case of default using the Rule 78 in financing compared to simple profit rate method.

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