Ijarah

Ijarah came from the root word

which means compensation or .It

also means the sale of usufruct. Legally it is defined as a contract to use the usufruct of a thing or the services of a person in return for compensation. The subject matter of the Ijara contract is the usufruct or the service that is rendered by an employee. In rent the right to use the property is transferred to the tenant and not the ownership of the property. Although the usufruct or the service is non-existent at the time of the conclusion of the contract it gradually comes into existence and is accumulated. Although Ijarah is the sale of the usufruct, it is distinguished from the sale by the fact that Ijarah, unlike sale, is for a limited time.

Things which if used could be consumed can not be hired. For instance fruit, food or, money cannot be rented as they are considered perishable properties. Usufruct is derived from usable properties while service which also comes under the category of usufruct is rendered by persons who are employed to do a certain well-defined job. Similarly it is not allowed to rent a cow for its milk or a tree for its fruit because the milk and fruits could not be classified as usufruct as they are tangible things. Usufruct, on the other hand, refers to abstract and intangible benefit that is derived from a certain property such as the shelter from a house or a lift from a horse or car, or service rendered by an employee or the labour from a cow.

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Legality of Ijara , , , Is it they who would portion out the mercy of thy Lord? It is We Who portion out between them their livelihood in the life of this world: and We raise some of them above others in ranks, so that some may command work from others. But the mercy of thy Lord is better than the (wealth) which they amass. 43: 32

If you decide on a foster-mother for your off spring there is no blame on you, provided you pay (the mother) what you offered, on equitable terms. 2: 233

And if they suckle your (offspring) give them their recompense. 6 :65

Afterwards one of the (damsels) came (back) to him, walking bashfully. She said: My father invites thee that he may reward thee for having watered (our flocks) for us. 25 : 28 , Said one of the (damsels): O, my (dear) father; engage him on wages: truly the best of men for thee to employ is the (man) who is strong and trusty.

Hadith:

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Give a servant his fee before his sweat dries up. He who hires a person should inform him of his fee.

Types of Ijarah Ijarah or lease could generally be divided into two: Lease for the usufruct and lease for the service. Lease for the usufruct could be both for movable assets such as car, jewellery, and cloth. It can also be for immovable asset such as house, and buildings. Lease for the service is also divided into two: Special employee who works for one employer for a specific wage. He is employed for a known period and a well-defined service. During the period of the contract he is not allowed to work for another employer. He is completely subject to the control of his employer as to what he does and now he does it. public or general employee, on the other hand, is his own master and works for himself. A tailor, a carpenter, a shoe-maker, a butcher, a physician, a dentist, or a consultancy firm are examples of general employees. They may work for more than one employer. No one can stop them from working for others. However, a general employee must provide what he has contacted to provide in the way of work or services, through he can determine his own method or performance in so far as the terms of his contract permit. A general employee is entitled to payment based on his work.

The Pillars of Ijarah Accrding to the Hanafiis Ijarah has two pillars of offer and acceptance. To the majority however, Ijarah has four pillars. They are: 1. Expression which includes both offer and acceptance.

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2. 3. 4.

The parties which include both the landlord /Employer and the tenant/employee . compensation, payment, salary, , usufruct, service

Conditions for the Usufruct/Service 1. The manfaah should be known. This is possible when the leased asset is seen and the usufruct or the service is clearly defined and the duration is clearly mentioned. This is to avoid conflict. 2. Since it is impossible to deliver the manfaah, the asset from which the manfaah is derived should be delivered. 3. The usufruct should be attainable. Thus, it is not allowed to rent money or perishable properties from which usufruct cannot be obtained. Similarly, a house that is not suitable for stay or a car that cannot be driven cannot be rented as it is not possible to derive any benefit or usufruct from these properties. 4. The usufruct should be permissible and be used for lawful purposes. For instance employment in haram industries is not allowed. Similarly, it is also not allowed to rent a house for gambling. 5. The service should not be obligatory on the person who rendered it. Anyone who does an action which is obligatory on him is not rewarded for that action or service. Consequently, Ijarah is not valid when a person is under obligation to render a certain service. For instance, a wife cannot demand wages for doing household jobs or for breast-feeding the child. These are jobs which she is legally bound to do. However, it is permissible to employ a wet-nurse to breast-fed and provide care to the child, but not her mother if she is not divorced.

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6. The service rendered should not benefit the employee. . Ijarah is not allowed where an employee has his own interest in the work done. For instance, a partner may not lawfully be employed by other partners to manage the partnership. Such a partner-employee becomes an employee for himself as he is also a partner in the same partnership. He, however, may receive a higher percentage in the profit compare to other partners who do not contribute to the management. 7. The usufruct should be used for the same purpose for which the asset is rented. The usufruct could also be shared among a number of lessees provided the asset is used for the same purpose.

Conditions for the Wage 1. That the payment ( )should be declared to the employee and known clearly in the contract. The Hadith of the Prophet p.b.u.h. states: Anyone who employs an employee should make known to him his salary. The payment could be made in advance or postponed to the end of the leasing period. It is also possible to make partial payment. The Hadith of the prophet states that Muslims are bound by the lawful conditions. If there are no conditions about payment whether advance or later, if the Ijarah is for a certain period it is then necessary to pay at the end of that period. For instance, a house is rented for one month. The payment has to be made at the end of that month. If the Ijarah is for a certain work the payment has to be made when the work is done.

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2.

The majority of the Fiqh Schools are of the opinion that Ijarah becomes void if a person is employed with the condition that he would be paid a certain part of the produce in which he is working. For example, if an employee who is picking up fruit is being paid in fruit. He may not need the fruit and has to sell it in most probability for a lower price. Similarly, it is not allowed if the owner of a taxi employs a driver for RM 100 to be paid from his daily earnings. It is void because there is the possibility that there may not be enough earning on a particular day as a result of which the driver may be paid less or not paid at all. These Schools rely on the Hadith of the Prophet p.b.u.h. The Hadith states: The Hanafiis have derived a general principle from this Hadith. The principle is: :

The Malikis, and Hanbalis, on the other hand, argue for the permissibility of paying the employee from the proceeds of his work provided the payment is known. They do not consider this Hadith as Sahih .

Maintenance of the Leased Asset The lessor has to bear the risk of loss and un-deliberate destruction of the asset. He also has to bear all capital expenditure (depreciation) and other insurance instalments related to that asset while the lessee should bear current expenditure that may be necessary for utilizing the asset during the leasing period. If the lease asset is not in good working conditions and has a defect, the lessee has the option to cancel the contract or to continue with it. After the end of the lease period, the lessee is under obligation to return the asset to the owner.

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There is no liability on a lessee, employee or tenant, except when it is established that he has transgressed or wasted and damaged the property. In such a case he is liable to replace the property.

Sale of Leased Asset It is permissible to sell the leased subject provided the purchaser knows and agrees to the continuity of the lease as the leasing contract is considered irrevocable. All terms and conditions, rights, and liabilities agreed upon in the lease contract will be transferred to the new owner. However, if the purchaser is not aware of the lease, he has the right to rescind the contract. The lease contract, however, will continue until its stipulated time.

Termination of ijarah 1. If the asset is not capable of giving the usufruct. 2. If the tenant fails to pay the rent or adhere to other conditions. 3. If the asset is destroyed. 4. According to the Hanafiis if either of the parties dies. They argue that usufruct is not property and as such cannot be inherited. The majority of the Schools consider usufruct a form of property and allow the Ijarah to continue until its stipulated time. 5. By the mutual agreement of the parties or Iqalah. 6. Lapse of the appointed time. For example if the contract is for one year it is terminated at the end of that period.

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Islamic Banks and Lease Islamic banks use the lease for the usufruct as an instrument of financing. The bank purchases the asset and rents it out to the customer in return for rental. The bank uses two models of Ijara: Operational lease and Lease-purchase (hire-purchase).

1. Operational Lease. The bank purchases and maintains assets which have a high degree of marketability. The bank rents these assets to other parties on terms and conditions agreed upon for a specific time. After the termination of the period the asset is returned to the bank. The bank then leases the same asset to a new lessee. The bank bears the risk of recession or diminishing demand for these assets. At the end the bank may choose to scrap or dispose the asset . Operational lease is suitable for assets which are expensive and their purchase requires a great amount of money such as aeroplanes, ships, industrial equipments and agricultural machineries. In addition it takes longer time to manufacture these assets. It is due to these factors that there is increasing demand for leasing these assets. The bank benefits from the transaction by retaining the ownership of the asset while at the same time gets a return by leasing it. The lessee also benefits from the transaction as it meets his immediate need and saves him from buying the asset at a much higher cost.

2. Hire-purchase-Financial Lease It refers to a type of ijarah that ends with ownership. Here the bank purchases the asset based on a promise from a customer. The customer promises to own the asset through lease. The asset will not be returned to the bank at the end of

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the lease period, as is the case in operational lease, but will be bought by the lessee. The rental is calculated based on the value of the asset which is financed, amount of rent, and the period of financing.

Operational lease is different from financial lease in a way that the former does not offer an option to the customer to buy the leased asset at the end of the lease period while in the latter the option is offered. If a lessee chooses to buy the asse t a new contract will be concluded. All the lease rentals previously paid will constitute part of the price.

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