The SECP circular stipulates that the Modarabas extend Ijarah financing facility to their clients on the basis of Ijarah agreement duly approved by the Religious Board, said a statement issued by the Commission here Friday.

However, sometimes Ijarah assets are not readily available and the Modarabas have to make advance payment to supplier/manufacturer of the said assets without any legal agreement with the client, as the Sharia does not allow execution of an `Ijarah Agreement' with the customer in the absence of physical existence of the assets.

This situation exposes the lessor (Modaraba) to the risk of refusal from the client at the time of actual delivery of assets.

In order to overcome the practical difficulties, the `Letter of Agreement to Ijarah' has been certified and unanimously approved by the Religious Board of Modarabas at its 37th meeting as a risk-management tool to bind the customers to take the assets on an Ijarah basis on the date of delivery.

This is expected to facilitate Modarabas in undertaking Ijarah transaction and work as a risk-mitigating tool for the Ijarah transactions to be undertaken by Modarabas with their clients.