Ijarah

Dr.Muhammad Sohail
Shari’ah Compliance Department
Definition of Ijarah
Transferring of usufruct not ownership to another person for an
agreed price, at an agreed consideration.

Types of Ijarah
1) Hiring/ Employment : To employ/hire the service of a person
on wages.

2) Leasing : To transfer the usufruct of a particular thing to

another person in its exchange for a rent.
Types of Leasing
1) Operating lease
Simple rental agreement in which the leased asset remains in the
ownership of lessor and comes back his after the lease period.
2) Hire- purchase
Where the intention of lessee is to acquire the ownership of
asset,but due to certain reasons,and in particular,due to some tax
concessions they show Ijarah and after the lease period corpus of
the leased asset transfers to the lessee without any new contract
and paid rental becomes price.
3) Financial Lease. (Conventional Lease and
Islamic Lease)
 Conventional Lease
The intention is same,only difference is that the corpus of leased
asset is transferred to the lessee by execution of sale agreement or
by gift,lease agreement has an express clause to this effect.it is also
impermissible for two reasons:
1)One transaction is tied up with another transaction.

2)Lessor does not bear the responsibility of lessor.

 Islamic Lease (Ijarah muntahiah bettamleek)
Intention is same,but the Ijarah agreement does not contain a
condition of sale or gift at the end of lease period and lessor bears
the responsibility of lessor and assumes the full risk of the corpus of
the leased asset.
 BASIC RULES OF IJARAH
Subject of lease
 Valuable,
 Identified and Quantified
 Consumable things cannot be leased out
Anything which cannot be used without consuming cannot be
leased out; e.g., money, wheat etc.
 BASIC RULES OF IJARAH
Rental of Lease
 The rental must be determined at the time of contract.
 It is permissible that different amount of rent are fixed for different
phases of rental period.
 It is permissible to tie up the rental amount with a variable
benchmark,the ceiling and floor should be determined.
 Rental will be charged when the Leased asset is handed over to the
lessee and not from the day the price has been paid.
 The lessor cannot increase the rent unilaterally, and any agreement to
this effect is void.
 BASIC RULES OF IJARAH
Period of lease
period of lease must be determined in clear terms at the time of
contract

Lease for specific purpose only

If no specific purpose is identified in the agreement, then it can be used
for any purpose for which it is used in normal course
 BASIC RULES OF IJARAH
Responsibility of lessor
 As the owner of the leased asset lessor bears and assumes the full risk of
the corpus of the leased asset. If the asset is destroyed during the lease
period,the lessor will suffer the loss.

 Similarly,if the leased asset looses its usufruct without any misuse or
negligence on the part of the lessee,the lessor can not claim the rent.

 Lessor is liable to pay all the expenses incurred in the process of its
purchase and its import to the country of the lessor,i.g:freight,custom
duty,
 BASIC RULES OF IJARAH
Responsibility of lessor
 Taxes related to ownership and registration charges of car will be
borne by the lessor,including agent fee if any.

 Takaful (Islamic Insurance) of leased asset is responsibility of

lessor.but he can appoint the lessee as an agent to arrange
insurance on behalf of him.
 BASIC RULES OF IJARAH
Responsibility of Lessee
 The lessee is liable to compensate the lessor for every harm to the
leased asset caused by any misuse or negligence.

 Taxes related to use of asset will be borne by the lessee.

 He is liable to the wear and tear which normally occurs during its
use
 IJARAH AS A MODE OF
FINANCING
Penalty for late payment of Rent
 In case of late payment we can not charge additional amount as
penalty,In order to solve this problem client will undertake in Ijarah
agreement that in case of late payment,he shall pay to the charity
account maintained by the bank a sum calculated on the basis of….%
per annum for each day of default,bank will spend this amount in
charity purpose on behalf of the client,This undertaking,in fact,is a
sort of Yameen/Nazar which is a self-imposed penalty to keep oneself
away from default.
 IJARAH AS A MODE OF
FINANCING
9. Termination of Lease
 If the lessee contravenes any term of the agreement, the lessor
has a right to terminate the lease contract unilaterally.

 If not then it can be terminated through mutual consent only.

 However, in such a case he cannot charge rentals of remaining

period. Further more,

 the destruction of the asset also terminates the lease.

 In the event of lessee’s death the lease will also be terminated

 IJARAH AS A MODE OF
FINANCING
Sub-Lease
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.
 IJARAH AS A MODE OF
FINANCING

undertaking to sale
The lessor may sign a separate promise to gift/Sale the leased
asset to the lessee at the end of the lease period, subject to his
payment of all amounts of rent. The validity of this arrangement
is subject to two basic conditions:
Firstly, the agreement of Ijarah itself should not be subjected to
signing this promise of sale or gift.
Secondly, the promise should be unilateral and binding on the
promisor only.