The Model used to finance a Car according to the rules of Islamic LARIBA Jurisprudence is the Lease-To-Purchase (LTP) Model. We NEVER start from the cost of money, which is usually called interest on money. Here is a summary of how it works.

We start by determining the monthly rental/lease rate of a similar auto by surveying the car dealers or the rent-a-car agencies. We request the client to do the same. The client and company finance officer compare the results of the survey and agree on a monthly lease/rental rate. WE never start from an interest rate. We start from the utility value of the vehicle. This concept is called "Marking the item to the Market." Interest rates are the same through the USA regardless of the economic condition of the city, locality or state. When we mark things to the market we directly reflect the utility that is a function of the economy of an area.

The model calls for the financing entity to purchase the property jointly with the client, and in a back-to-back agreement, the client purchases the shares of the financing entity at cost. In doing so, there is no time-value of money. The client owns title to the car with the company holding a first-position lien. This structure also conforms to requirements of the banking regulators. The client agrees to buy-back the company’s portion over a period of time. Called Repayment of Capital (R-of-C, pronounced ‘ROFSEE’) to the company.

Return on Capital (R-on-C, pronounced ‘RONSEE’). It represents the property’s lease value as explained in item 1 above and is calculated based on a declining equity model based on the property’s economic value (utility). Using this model, we calculate market value of the car, not to a predetermined interest rate like LIBOR or Prime Rates.

The financing agreement consists of two parts: the first is a loan agreement in which the client returns the capital to the company (Return on Capital); the second is a lease agreement based on an agreed lease rate, calculated based on the declining equity stipulated by the Return-of-Capital pay back agreement.

Based on the agreement detailed above, a promissory note is drawn. It details the monthly payments representing the Repayment OF Capital portion and the Return ON Capital (lease) portion. To comply with the U.S. regulatory requirements and U.S. banking system rules, the monthly payment streams are plugged into a traditional amortization program to calculate an implied interest rate. This allows LARIBA to satisfy the "Truth-In-Lending" and "Full and Complete Disclosure of Implied Interest Rate" laws as required by US Banking and lending requirements. The models, and agreements used for all transactions, are exclusively developed by the Company to provide services for the clients seeking Islamic financing products.


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