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Sahariah Rules in Business and Finance

IJARAH
SAAD846@HOTMAIL.COM

Introduction

Ijara or leasing is a form of contract allowed by Islam


based on the textual evidences of al-Quran and Sunnah.

Not everyone has the means to purchase or own certain


assets which he needs so as to utilize and benefit from
them.

Therefore, Islam has permitted the contract of leasing in


order to facilitate public needs and to provide facilities in
life.

Islamic law permits the leasing of certain assets whose


benefit can be obtained by the lessee against the
payment of some agreed rental.

Definition of Ijarah

The literal definition of ijarah is the reward given for service


rendered. It is derived from the root word ajjara to
recompense, compensate or to give a consideration or
return.

Technically, ijarah has two different connotations:

1. It means to employ the services of a person on wages


given to him as a consideration for his hired services.
The employer in this case is called mustajir while
the employee is called ajir.
This type of ijarah includes every transaction where the
services of a person are hired by someone else. (doctor,
lawyer, teacher or any person who can render some valuable
services.

Cont.
2. Ijarah relates to the usufruct of assets and properties and
not to the services of human beings.
Ijarah in this sense means to transfer the usufruct of a
particular property to another person in exchange for a rent
claimed from him..
In this case, the term ijarah has the same meaning
with the term leasing.
In this instance, the lessor is called mujir, while the
lessee is called mustajir and the rent payable to
the lessor is called ujrah.

Classical Jurist Definition

The classical jurists have given several definitions of ijarah


The Hanafis definition: A contract pertaining to usufruct with

compensation.

The

Shafiis definition: A contract over a desirable, known,


permissible, and accessible usufruct, in exchange for a known
compensation.

The Malikis and the Hanbalis definition: The transfer of ownership of

a permitted usufruct for a known period in exchange for


compensation.

The above definitions indicate that ijarah is a bilateral contract where

the use of a corporeal object is exchanged for a price.

The only difference between ijarah and sale is that in the latter case

the corpus of the property is transferred to the purchaser, while in the


case of ijarah, the corpus of the property remains in the ownership of
the transferor, but only its usufruct,

Authority of Ijarah
Quranic Evidence of Ijarah
There are several verses in the Quran which are normally
quoted as evidence for Ijarah.
Allah says: And said one of them (the two women): O my father! Hire

him! Verily, the best of men for you to hire is the strong, the trustworthy.
He said: I intend to wed one of these two daughters of mine to you, on
condition that you serve me for eight years, but if you complete ten
years, it will be (a favour) from you. But I intend not to place you under
a difficulty. If Allah will, you will find me one of the righteous. (28: 2627).

And if they suckle your (offspring), give them their recompense (65:6).
Then they proceeded: until, when they came to the inhabitants of a

town, they asked them for food, but they refused them hospitality. They
found there a wall on the point of falling down, but he set it up straight.
(Moses) said: If thou hadst wished, surely thou couldst have exacted
some recompense for it! (18:77).

Cont.
Sunnah Evidence of Ijarah

The evidences from the Sunnah are derived from various


Hadith which are as follows:
The Prophet (pbuh) said: Pay the hired worker his wages before his

sweat dries off. (Narrated by Ibn Majah) The order to pay wages (ajr)
as instructed by the Prophet (pbuh) in this Hadith is clearly an
indication of the validity of hiring a worker for a specific period of time.

The Prophet (pbuh) is reported to have said: He who hires a person

should inform him of his fee. (Narrated by al-Baihaqi)

Three people I shall be their enemy during doomsday. Then he

mentioned: A man who hired a worker to carry out some work for him,
but did not give him his wage

All the above mentioned Hadiths provide clear evidence on


the legality of the ijarah contract.

Cont.

In addition, ijarah has been unanimously approved by the


prominent jurists of the recognized schools of Islamic law.

They held the view that the need to utilize the usufruct of
different articles (goods and services) is like the need to
utilize the articles themselves.

They reasoned that ijarah is a means of facilitating the


standard of life by helping people to get the usufructs of
assets, which they do not own. The need for usufructs is
similar to the need for assets, and consideration for the
needs of the people is a basic principle in legalising a
contract to fulfil such needs and requirements

Ijarah based on the type of the subject matter

A tangible asset (ayn): The term ayn is


generally used as an opposite of dayn
(debt). In the matter of ijarah, it comprises
all tangible assets such as properties,
transport facilities and factories.
Labour/Non tangible asset (amal): two
types of workers, either an employee (ajir
khas) or an independent contractor (ajir
mushtarak), can execute the labour.

Ijarah based on the specification of the subject matter:

A particular source of benefit (ijarah


muayyanah): It is called so because the
lease contract is related to a specific
piece of property like a car or a shop.
A liability or a pledge to be fulfilled by a
lessor (ijarah mawsufa fi al-dhimmah): A
contract on a particular usufruct that the
lessor assumes the liability to provide.

Ijarah based on the time the contract becomes effective

Instant lease (ijarah munjjazah): This is a lease


contract, which comes into effect immediately
after the offer is accepted without relation to a
future event or a fixed future date.
Lease at a future date (ijarah mudafah): This is
a lease contract whereby its effect is delayed to
a future date.
Lease subjected to the fulfilment of certain
conditions (ijarah muallaqah): This is a lease
contract by which effectiveness is tied to a
future event. Majority (invalid).

Ijarah based on the


contractual relationship
Operating lease (ijarah tashghiliyyah): It is
an ijarah conducted by either IFIs or
business companies. Its main criteria are
that it is not tied with a purchasing
agreement.
Financing lease (ijarah tamwiliyyah): It is
an ijarah conducted usually by IFIs and
tied to purchasing or gifting. Such
transactions are widely used in real estate,
machinery and equipment.

Conditions of ijarah contract

Both parties should precisely know the


consideration given whether it is for the
usufruct of a service or the usufruct of an
asset.
In all kinds of ijarah, the period of the
contract must be fixed and its purpose
should be specified.
The lessor must be the absolute owner of
the rented item or the agent of the owner or
his natural or legal guardian.

Conditions of ijarah contract

It is the responsibility of the lessor to maintain the


leased property in such a way as to retain the benefit
of the property.
If the lessee intentionally damages the leased
property, the lessor has the right to terminate the
lease agreement and seek compensation.
The lessee is allowed to sub-let immovable property
provided that there is no restriction from doing so in
the agreement of the ijarah contract.
In the ijarah of services, the benefit should be made
known by a statement describing the nature of the
service being offered.

APPLICATION- IJARAH THUMMA ALBAI

Intention of the landlord/owner/lessor is to keep ownership up


to the very end of the duration. Upon completion of ijarah,
ownership is transferred to the tenant/lessee

Few modes are used to achieve this end:


- pay rents fully till the end of the period, you gets the
ownership
- pay rents fully till the end of the period, you are entitled to
purchase the asset for a token price
- pay rent fully till the end of the period, you are entitled to
purchase the asset at the prevailing market price
- the lessor promises the tenant/lessee that he will sell him
the asset at real market value upon completion of ijarah
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Sale and lease back

Sukuk ijarah is the sale of property to


sukuk holders, and subsequently leasing
back the asset from the sukuk holders
and promising to buy back the asset
upon maturity.
Issue 1: The legality of the sale of corpus
with the condition to lease it back.
Issue 2: The repurchasing of the asset
at the maturity date by the issuer.

Sale and lease back

Inah is applicable to the sale and


buyback of the corpus as well as the
sale and buyback of the usufruct

The majority do not consider this as inah

Sale and lease back

Most opponents consider this transaction akin


to inah. They, therefore, nullify such a
transaction.

It is not permissible to sell an asset on a


cash basis with the stipulation that the seller
leases the asset via a lease ending with
ownership, whereby the total rental
payments and repurchase price paid by the
sukuk issuer would be more than the cash
price paid by the sukuk holders.

Thank You