THE CONCEPT OF IJARA
Dr. Muhammad Zubair Usmani
Sharia Advisor
Muslim Commercial Bank Ltd.
Jamia Darul Uloom Karachi
at AlHuda CIBE – NIBAF Islamabad.
1
2
BASIC RULES OF IJARA

Transferring of usufruct not ownership
To another person for an agreed price, at an agreed consideration.

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.
3
BASIC RULES OF IJARA

All Liabilities of ownership are borne by lessor
Corpus of leased property remains in the ownership of the seller.

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
4
BASIC RULES OF IJARA

Lessee as Ameen
The lessee is liable to compensate the lessor for every harm to the
leased asset caused by any misuse or negligence. The leased asset
shall remain in the risk of the lessor throughout the lease period.

Lease of jointly owned property
Is permitted and rentals shall be distributed between all the joint
owners according to the proportion of their respective shares in
the property.
5
BASIC RULES OF IJARA

Determination of Rental
The rental must be determined at the time of contract for the whole
period of lease.
It is permissible that different amounts of rent are fixed for different
phases during the lease period, provided that the amount of rent for
each phase is specifically agreed upon at the time of effecting a lease.
The determination of rental on the basis of the aggregate cost
incurred in the purchase of the asset by the lessor, as normally done
in financial leases, is not against the rules of Shariah.
6
BASIC RULES OF IJARA

Determination of Rental
The lessor cannot increase the rent unilaterally, and any
agreement to this effect is void.
The lease period shall commence from the date on which
the leased asset has been delivered to the lessee.
Rental will be charged when the Leased asset is handed
over to the lessee.
7
IJARA AS A MODE OF
FINANCING

Leasing should not be interest-based loan or
replacing interest with rent, rather it should
comply with all of the following conditions of
Islamic leasing:
8
IJARA AS A MODE OF
FINANCING
1. The commencement of lease
Unlike the contract of sale, the agreement of Ijarah can be effected for
a future date. Hence, it is different from Murabaha.
2. Rent should be charged after the delivery of the leased asset to the
lessee
and not from the day the price has been paid. If the supplier has
delayed the delivery after receiving the full price, the lessee should not
be liable for the rent of the period of delay.
3. Different relations of the parties
There are two separate relations between the institution and the client:
one of an agent and the other of a lessee.
9
IJARA AS A MODE OF
FINANCING
4. Difference between Murabahah and leasing


A Murabahah attributed to a future date is invalid in
Shariah. But leasing can be attributed to a future date.
A Murabaha can not be transacted on a future date as the
sale would be executed simultaneously after taking
delivery from the supplier and seller would never bear its
risk which Shariah does not permit . But in leasing it is
permissible, because in leasing the asset remains under the
risk and ownership of the lessor throughout the leasing
period.
10
IJARA AS A MODE OF
FINANCING
5. Expenses consequent to ownership to the lessor
As the lessor is the owner of the asset, he is liable to pay
all the expenses incurred in the process of its purchase and
its import to the country of the lessor for example expenses
of freight and customs duty etc.
6. Lessee as Ameen
The lessee is responsible for any loss caused to the asset by
his misuse or negligence. He can also be made liable to
any normally occurring wear and tear.
11
IJARA AS A MODE OF
FINANCING
7. Variable Rentals in Long Term Leases
In this case the lessor has two options:
 A lease contract can have a condition that the rent shall be
increased according to a specified proportion (e.g. 5%)
after a specified period (like one year).
 He can contract lease for a shorter period after which the
parties can renew the lease at new terms and by mutual
consent
12
IJARA AS A MODE OF
FINANCING
8. Penalty for late payment of Rent
The lessor cannot charge an additional amount in case the
lessee delays payment of the rent. Penalty of late payment
is given to charity by lessee
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
13
IJARA AS A MODE OF
FINANCING
10. Insurance of the assets
If the leased property is insured under the Islamic mode of Takaful, it
should be at the expense of the lessor and not at the expense of the
lessee
11. The residual value of the leased asset
Through a mutual agreement of Lease, after the expiry of the lease
period, the corpus of the leased asset cannot be transferred to the
lessee, otherwise it becomes hire purchase.
It is a well-settled rule of Islamic jurisprudence that one transaction
cannot be tied up with another transaction so as to make the former a
pre-condition for the other.
However, the lessor may enter into a unilateral undertaking to sell the
leased asset to the lessee at the end of the lease period. This
undertaking will be binding on the lessor only.
14
IJARA AS A MODE OF
FINANCING
12. Ijarah Wa Iqtina
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.
13. 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.
15
SALE AND LEASE BACK
When the client sells the asset to the bank the entire risk and rewards
are transferred to the bank who is then is responsible for the ownership
related expenses
In this case the bank is allowed to lease the asset to the client but there
are conditions which have to be followed to make the entire transaction
Sharia compliant.
 There should be at least one year lease period
 There should be separate contracts for sale and lease
 The agreement to sell at the end of the lease must be separate
 The intention of the client is to avoid interest related transactions
16