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AL-IJARAH

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OUTLINE

DEFINITION TYPES OF IJARAH CONDITIONS EVIDENCE PILLARS COMPARISON RELATED TERM ISSUE

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EVIDENCE OF ALIJARAH

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Quran

Surah Al-Qasas : 26-27

One of the women said, "O my father, hire him. Indeed, the best one you can hire is the strong and the trustworthy."

He said, "Indeed, I wish to wed you one of these, my two daughters, on [the condition] that you serve me for eight years; but if you complete ten, it will be [as a favor] from you. And I do not wish to put you in difficulty. You will find me, if Allah wills, from among 6/13/12the righteous."

HADITH
Give a servant his fee before his sweat dries up
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.

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PILLARS OF AL-IJARAH

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FLOWS OF AL-IJARAH
Use of Manfaah IJAB (Offer)

MUAJJIR

MAJUR
(THINGS/ ASSET)

MUSTAJI R

MANFAAH
QABUL (Acceptance) Ujrah (Fees/ Rental)

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CONDITIONS OF ALIJARAH

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PROPERTY
1.

The property must be belong to lessor

1.

The property is known to both parties and is specified

1.

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

1.

The property should be in a good condition possible for leasing

1.

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

1.

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

1.

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).

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1.

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

USUFRUCT
1.

The use of the service (usufruct) can be valued with money. The usufruct must be valid according to Islamic commercial law. The lessee should be able to make use of the property on lease. usage of the property should be made clear in

1.

1.

1. The 6/13/12

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. The payment of rent can be made in advance.

1.

If the condition for payment does not 6/13/12 prescribed to be paid in advance, the
1.

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.

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COMPARISON BETWEEN CONVENTIONAL LEASING AND IJARAH

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Leasing/Ijarah Contract
Conventional Leasing
There are two types of contracts, Financial lease and loan for car financing. Both these contracts contain conditions that are contravenes with the Islamic Sharia'h. Financing lease contains conditions of hire purchase, which is not permissible by Sharia'h. Car financing or loan agreement contains conditions 6/13/12

Islamic Ijarah
The Ijarah contract does not contain any condition that makes the contract void under Sharia'h perspective.

Rights & Liabilities of Lessor and Lessee


Conventional Leasing Ijarah
In Conventional Leasing Products,All risks pertaining to the Customer is responsible for allownership are borne by kinds of losses or damages to theLessor. Customer only Leased asset, irrespective of thebears usage-related risks circumstances. If the insurance company does not compensate the entireLessor bears the risk of outstanding amount in case ofInsurance claim settlement. total loss, the customer is liable to pay the balance.
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Rentals recovery in case of theft and loss


Conventional Leasing Ijarah If the Leased Asset is stolenUnder the Islamic Ijarah, or completely destroyed, therent is consideration for conventional leasingusage of the leased company or Bank wouldasset, and if the asset continue charging the leasehas been stolen, rent till the settlement of thedestroyed or temporarily Insurance claim out of order and not in use of Customer, the concept of rental becomes void. In such situations rental is not 6/13/12 charged from the lessee.

Penalty for late payment


Conventional Leasing Ijarah In most contemporary financialUnder Ijarah, the Lessee may leases, an extra monetarybe asked to undertake that if amount is charged if rent is nothe fails to pay rent on its due paid on time. This extradate, he will pay a certain amount is the considered Ribaamount to a charity Fund, and is Haram. which will be administered through the Islamic Bank. This amount is taken by the leasing institution into theirFor this purpose the bank income. maintains a charity fund where such amounts may be credited and disbursed for charitable purposes.
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Insurance premium
Conventional Leasing Insurance is independent of the lease contract. The insurance expense of the asset is directly borne by the lessee Ijarah Takaful / Insurance should be at the expense of the Lessor and not at the expense of the lessee. The Lessor may increase the lease rent to recover any costs incurred by him in connection with the asset. However, as a matter of principal, the cost should be paid for by the Lessor.

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Registration Charges
Conventional Leasing Ijarah Lessee is responsible for theThe Leased Registration of Leased Asset(vehicle) is Vehicle. registered in the name of the Bank and registration charges are paid by the Bank (Lessor). The Lessor may increase the lease rent to recover any costs incurred by him in connection with

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Purchase of asset
Conventional Leasing Ijarah Under conventional leasing There is not such clause in contracts, the vehicle is the Ijarah Agreement that automatically transferred in Leased Asset will the name of the customer automatically transfer to upon completion of the lease Lessee. period, whether or not he wants to purchase it. Separate sale agreement is required to execute sale transaction at the end of lease term.
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Commencement of Rentals
Conventional Leasing In case of Booking of Leased Asset, recovery of Lease installment commence after the payment of cost of Asset to manufacturer/dealer. Ijarah In case of Car Ijarah, the recovery of rentals is associated with delivery of Leased Asset. Rental recovery should not be commenced before the delivery of Asset.

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Signing of Lease Contract


Conventional Leasing Lease Agreement can be signed by the Lessee and Lessee any time even if the Leased Asset is not owned by the Customer. Ijarah In case of Ijarah, the Ijarah Agreement can not be signed by the Lessor and Lessee unless:
Asset

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has come in to existence Assets is in the ownership of the Lessor Lessor has taken possession of the Asset

Termination before delivery


Conventional Leasing The customer will suffer loss of interest paid during the booking period because installment commence immediately after payment of cost of asset to the Manufacturer/Dealer. Ijarah The loss of customer is only limited to actual loss, if any, suffered by the Lessor on sale of asset in the open market. Since the customer has not paid any rental during the booking period, no other cash loss is expected under Ijarah.

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