IJARAH

(LEASING)

By
Ayesha Rehan
AL-IJARAH THUMMA AL-BAY’ (AITAB)
• AITAB is a contract of leasing with a
promise to sell the asset at maturity.
• The contract of AITAB consists of two
different contracts, namely:
• 1. The contract of lease (al-ijarah’ain)
• 2. The contract of sale (al-bay’)

• In AITAB, the contract of al-ijarah runs

separately from the contract of al-bay‟.
AITAB

• AITAB is Islamic hire purchase

• Hire purchase is an arrangement for buying
expensive consumer goods, where the buyer
makes an initial down payment and pays the
balance plus interest in installments.
• The ownership of the merchandise is not
officially transferred to the buyer until all the
payments have been made.
• The term hire purchase is commonly used in UK and it's
more commonly known as an installment plan in USA.
 AITAB Ruling in Sharia’h
• It is well settled rule of Islamic jurisprudence that
one transaction cannot be tied up with another
transaction so as to make the former a pre-
conditioned for the other.
• The agreement of Ijarah itself should not contain a
condition of gift or sale at the end of lease period. The
lessor may enter into a unilateral promise to sell the
leased asset to the lessee at the end of the lease period.
• Once this promise is signed by the lessor, he is bound to
fulfill it and the lessee may exercise his option to purchase
at the end of the period, if he has fully paid the amounts of
rent according to the agreement of lease.
 Three Party Ijarah Process
• This is a lease agreement between Bank
and Customer
• whereby the bank appoints the customer as
its agent
• The customer either identifies the vendor or
select the asset and bank makes the
payment.
• Vendor make delivery of asset and the bank
becomes lessor to the customer (lessee)
 Sub-Lease
• All the schools of Islamic jurisprudence are
unanimous on the permissibility of the sub-
lease only if the lessor permits the lessee for it.
• The rent claimed from the sub- lessee should be
equal to or less than the rent payable to the
owner/original lessor.
• Moreover, if the leased asset is used differently
by different users, the lessee cannot sub-lease
the leased asset except with the express
permission of the lessor.
 Sale and Lease Back
• The client sells the asset to the bank. The
ownership of the asset with risk and rewards are
transferred to the bank.
• The bank lease the asset back to the same client.
• Conditions for Sharia’h compliance
• There should be at least one year lease period
• There should be separate contracts for sale and lease back
• The agreement to sell at the end of the lease must be
separate
• The intention of the client is to avoid interest related
transactions and to raise funds
 Assigning of Lease
• The lessor can sell the leased property to a third
party. The relation of lessor and lessee shall be re-
established between the new owner and the
lessee.
• Assignment of a leased asset without assigning
ownership is allowed in Sharia’h only where no
monetary consideration is charged from the
assignee for this assignment.
• Example: A lessor can assign his right to claim
rent from the lessee to his son or to his friend in
the form of a gift.
 Securitization of Ijarah
• It is possible to create a secondary market instrument for
the financiers on the basis of Ijarah.
• The lessor (owner) can sell the leased asset wholly or
partly either to one party or to a number of individuals to
recover his cost of purchase of the asset with a profit
thereon. This purchase of a proportion of the asset by
each individual may be evidenced by a certificate, which
may be called 'Ijarah certificate’.

• Securitization is issuing certificate of ownership

against an investment pool or business
enterprise.
 Ijarah Certificate
• Ijarah certificate represent the holder’s
proportionate ownership in the leased asset.
• The owner will assume the rights and obligation
of the owner/lessor to the extend of his
proportion
• The holder will be entitled to the part of rent
according to his proportion of asset ownership.
• Sharia’h requires the ijarah certificates to be
issued to represent real ownership of the asset
and not only the right to receive rent.
 Ijarah Certificate
• These certificates can be negotiated and
freely traded in the open market and are
readily marketable.

• In case of total destruction of asset,

certificate holder will suffer loss to the
extend of his proportion of investment.
 First National Bank Modarba - FNBM
• FNBM ljarah is a contract where the benefits/use of an asset is
transferred by the owner (lessor) to the lessee at an agreed price/rental
amount for an agreed period of time or Ijarah period. During the period
othe Ownership of the assets remains with FNBM.

• The rules of Ijarah, in the sense of leasing, are very much analogous to
the rules of sale, because in both cases something is transferred to
another person for a valuable consideration. 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
i.e. the right to use it, is transferred to the lessee.

• FNBM offers Ijarah on Vehicles, Plant & Machinery, Equipments and

other similar assets.
 What is Meezan Car Ijarah?
• Car Ijarah is Meezan Bank’s car financing product and is
Pakistan’s first Interest-free car financing. It is based on
the Islamic financing mode of Ijarah (leasing). This
product is ideal for individuals who want to get interest-
free financing for acquiring a car.

Car Ijarah works through a car rental agreement, under

which the Bank purchases the car and rents it out to the
customer for a period of 1 to 7 years, agreed at the time
of the contract. Upon completion of the Ijarah period, the
vehicle will be sold at a token amount or gifted to the
customer.