AL IJARAH

DEFINITION

Literally:

Ijarah came from the root word which means compensation or . It also means the sale of usufruct.

Technically:

A contract of proposed and known usufruct with a specified and lawful return or compensation for the
effort or work which has been expended.

It is used to express the sale (bay‟) of a known benefit in return for its known equivalent.

Usufruct:

The usage of shelter for house, transportation for vehicles and others for a fee.

Services:

To work using physical energy or skills such as lifting goods, cleaning of office, writing, lecturing,
and others for a fee

NATURE OF IJARAH

Lease is a contract by which the owner of land, a building allows another person to use it for a specific
time, usually in return for a rent

Al-Ijarah means a lease contract as well as a hire contract.

Al-Ijarah, is also known as al-Kira‟. It is like someone who is selling to someone else a right to benefit
or as a payment for services with a certain price to be paid for it.

In the context of Islamic banking it is a lease contract under which the bank or financial institution
leases equipment or a building to one of its clients against a fixed charge.
DIFFERENCES OF OPINION

OPINION JURISTS REASON

Forbids contract of Ijarah
Hassan al Basri Ijarah is the sale of usufruct
Al Nahrawani or services, and services is
something intangible and
does not exist at the time of
contract.

It only can be achieve

gradually over certain period
and something that not exist
cannot be sold.

It is not permissible to
associate bay‟ (trade) with
something that could only be
realized and achieved in the
future

Allowed contracts of Ijarah Majority of jurists including Ibn Even though usufruct does
Rushd not exist at the time of
contract, normally it could be
realized or achieved

This type of usufruct or

benefit could ordinarily be
accomplished, or its
accomplishment or non-
accomplishment is rather
similar

EVIDENCE

Hadith:

“Give a servant his fee before his sweat dries up” (Al-Baihaqi)

Reported by Ibn Abbas to the effect that Prophet (s.a.w) had himself cupped and gave the person who
cupped him his remuneration, if it is prohibited he would not have paid him in the first place.

Ijma‟:

The ummah had came to a consensus during the time of companion on permissibility of Ujrah since
the need of people for usufruct is similar to their need to physical good.
PILLARS OF IJARAH

1. Muajjir:

A person who give something for hire – Lessor, landlord, owner etc.

2. Musta‟jir:

A person who takes on hire – Lessee, tenant, renter etc.

3. Ma‟jur:

A thing given for rent

4. Al-Manfaah:

The benefit from a thing – usufruct, services etc.

5. Ujrah:

Price or fee given for the payment of rent or lease

6. Sighah:

Offer (Ijab) and Acceptance (Qabul)

TYPES OF IJARAH

1) Based on Subject Matter

- Tangible assets
- Labour
- Description of asset

2) Based on the Contractual Relationship

- Operating lease
- Financial lease
BASED ON SUBJECT MATTER OF THE LEASED ASSET
1. Ijarah’ Ain  To lease the usufruct from the specific goods or
asset
 Comprises all tangible assets.
 E.g.: property, transport, facilities and factories,
etc.
2. Ijarah’ Amal  To lease out the works or self skills
 • Two type of workers:

1. Employee : person/entity that work only for

the interest of a particular employer or
independent contractor; does not have right to
work for any other lessee during contract.

2. Independent contractor: offer services to the

general public

 E.g: consultant, lawyer, contractor

3. Ijarah’ Mawasufah fi al-Zimmah  Form of ijarah where asset need to be described
in advance
 The leased item/asset is not available during
contract
 The asset must be delivered on a future agreed
date
 No requirement should be imposed for the rental
payment to be paid in advance

BASED ON THE CONTRACTUAL RELATIONSHIP

1. Operating Lease  Original form of ijarah „ain
 Features of operating lease:
o Asset acqusition is in full ownership of
the lessor legal and beneficial ownership
o Responsibility to maintain bear by the
lessor in administrative affairs and
maintenance of asset; lessee only
responsible in the maintenance due to
the usage and has to pay rent per agreed.
o Risk on the asset ander liability and
responsibility of the lessor
 High risk in nature.
2. Financial Lease  Normally used and offered by Islamic bank as
financial intermediaries in:
• Obtaining desired asset
• Obtaining cash money for various purposes
 Known as al-Ijarah Thumma al-Bay‟, al-Ijarah wa
al- Iqtina‟ or al-Ijarah Muntahiyah bi al-Tamlik.
SUBJECT MATTER OF AL IJARAH

1. Since Ijarah is the sale of usufruct, majority of jurist forbid Ijarah on trees and grapevines, since fruit
are physical goods and Ijarah is the sale of usufruct and not physical goods.

2. It is also not permissible to conduct Ijarah on animal for its milk; ghee, wool or offspring; water in the
river or well or canal since all these are goods, and not eligible to be under contract of Ijarah.

3. It is also not permitted to conduct ijarah on non-arable (not fit for cultivation) land which have ponds
for fishing, canes and wildlife for hunting since all these are goods. It is not legal to rent pond or lake for
fishing.

4. Basic principle of Ijarah: every item that could be utilized with its original substance and part
consistently being conserved or preserved is allowed for Ijarah, and if not is not legal.

CONDITIONS OF AL IJARAH

The conditions for Property

1. The property must be belong to lessor

2. The property is known to both parties and is specified

3. The property can be acquired by the lessee for his use until the end of tenancy or lease

4. The property should be in a good condition possible for leasing

5. It is the liability of the lessor to repair damages of the property in order to make it possible for leasing

6. It is the liability of the lessee to ensure the cleanliness and safety of the property

7. The liability of the lessee over the property is under the concept of trust (wadiah yadd amanah).
However, in the case of damages due to his negligence, the lessee is liable to pay the compensation
(dhaman).

8. The lessee cannot lease the property to another tenant and the second contract is considered as
illegitimate.

9. The sale of a lease property is legitimate. However, the lessee has a right to use the property until the
lease contract has expired, where the property will then be submitted to the buyer.

10. The concept of al-Wadiah is applied when the lease contract has expired and the lessee is still
holding the property.
The conditions for Usufruct

1. The use of the service (usufruct) can be valued with money.

2. The usufruct must be valid according to Islamic commercial law.

3. The lessee should be able to make use of the property on lease.

4. The usage of the property should be made clear in order to avoid any argument.

5. The usufruct does not entitled the lessee to own the property.

6. The lessee is not obliged to inform the lessor his intention for using the property, except in the case of
possible destruction.

7. The usufruct of property beyond its normal usage is considered as an act of intention.

The conditions for Payment

1. The amount of payment of rent must be known. If the payment is not in form of cash money, the
goods in return must be specified its quantity, types and its characteristics.

2. The payment of rent can be made in advance.

3. If the condition for payment does not prescribed to be paid in advance, the payment begins when
usufruct started.

4. If the payment is made on daily, weekly or monthly basis, the payment should be made at the end of
period unless otherwise stated on the agreement.

5. If the property cannot be used the payment is not obliged upon the user.

The conditions for Sighah

The contract of offer and acceptance should follow all the conditions of the contract of sale in Islam;
i.e. it should be on mutual acceptance, cannot be made in form of promises or an order and the offer
and acceptance should be the same.
DIFFERENCES BETWEEN IJARAH AND NORMAL SALES

IJARAH ELEMENT NORMAL SALES

Based solely on a DURATION Does not permit any time
predetermined time frame frame
as part of the requirement of
the contract
A temporary contract with a NATURE A permanent contract
specified time frame for its without any specified
expiry and due time period of expiration
No time of ownership OWNERSHIP Transfer of ownership
occurs
Usufruct and services SUBJECT Physical Goods and
property

MODERN APPLICATION

1. Simple ijarah

2. AITAB

3. Musharakah mutanaqisah

4. Ijarah based credit card

5. Sukuk ijarah

6. Ijarah rental swaps

AL-IJARAH THUMMA AL-BAY’ (AITAB)

AITAB also known as ijarah wa iqtina‟ ( ) or alijarah muntahiya bi-tamlik ( )

Definition:

Owning the benefit of certain assets for a specific period of time, by paying an agreed sums of rental,
with an agreement that the owner will transfer the rented asset to the hirer at the end of the agreed
period or during the period, provided all rental payments or installments have been made in entirety

In theory, the contract of AITAB shall consist of two different contracts, namely:

1. The contract of lease (al-ijarah „ain)

2. The contract of sale (al-bay‟)

AITAB is a contract of leasing with a promise to sell the asset.

FLOWS OF AITAB

In AITAB, the contract of al-ijarah runs separately from the contract of al-bay‟. These stages are:

Stage 1: Executing the contract of true leasing (al-ijarah „ain)

Stage 2: Executing the contract of sale (al-bay‟) at a nominal value agreed upon by both parties.

FLOWS OF AITAB (lukiss)