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ISLAMIC BUSINESS TRANSACTION

Y
CHAPTER ELEVEN

AL--IJARAH
AL

MAHYUDDIN KHALID Y emkay@salam.uitm.edu.my


] 
Y DEFINITION
DEFINITION Y EVIDENCE
Y PILLARS OF AL-IJARAH
EVIDENCE Y CONDITION OF AL-IJARAH
Y COMPARISON BETWEEN AL-IJARAH AND NORMAL SALES
PILLARS Y AL-IJARAH THUMMA AL-BAY·

CONDITION

COMPARISON

AITAB


à 
Y Literally:
DEFINITION  Ijarah came from the root word Ô which means
compensation or . It also means the sale of usufruct.
EVIDENCE Y Technicallly:
 A contract of proposed and known usufruct with a specified
PILLARS and lawful return or compensation for the effort or work
which has been expended. It is used to express the sale (bay·)
of a known benefit in return for its known equivalent.
CONDITION

COMPARISON
 Usufruct:
 The usage of shelter for house, transportation for vehicles and
others for a fee.
AITAB
 Services:
 To work using physical energy or skills such as lifting goods,
cleaning of office, writing, lecturing, and others for a fee

r
  
 
Y Lease is a contract by which the owner of land, a building allows
DEFINITION another person to use it for a specific time, usually in return for a
rent
EVIDENCE Y Al-Ijarah means a lease contract as well as a hire contract.
Y Al-Ijarah, is also known as al-Kira·. It is like someone who is
PILLARS selling to someone else a right to benefit or as a payment for
services with a certain price to be paid for it.
Y In the context of Islamic banking it is a lease contract under
CONDITION
which the bank or financial institution leases equipment or a
building to one of its clients against a fixed charge.
COMPARISON

AITAB

D
à]   
M M M
DEFINITION Forbids Some jurist Ijarah is the sale of usufruct or services,
contract of including and services is something intangible and
Ijarah. Hassan al- does not exist at the time of contract.
EVIDENCE
Basri, al- It only can be achieve gradually over
Nahrawani and certain period and something that not exist
PILLARS others cannot be sold.
It is not permissible to associate bay·
CONDITION (trade) with something that could only be
realized and achieved in the future
COMPARISON Allowed Majority of Even though usufruct does not exist at the
contracts of jurist including time of contract, normally it could be
Ijarah Ibn Rushd realized or achieved
AITAB This type of usufruct or benefit could
ordinarily be accomplished, or its
accomplishment or non-accomplishment is
rather similar

 
à]
Y Quran:
DEFINITION  .

EVIDENCE

PILLARS Y Hadith:
 ‰ ive a servant his fee before his sweat dries upµ
 Reported by Ibn Abbas to the effect that Prophet (s.a.w) had
CONDITION
himself cupped and gave the person who cupped him his
remuneration, if it is prohibited he would not have paid him
COMPARISON in the first place.

AITAB Y Ijma·:
 The ummah had came to a consensus during the time of
companion on permissibility of Ujrah since the need of
people for usufruct is similar to their need to physical good.




  
 
Y 
   
DEFINITION
ü. Muajjir:
EVIDENCE  A person who give something for hire ² Lessor, lanlord,
owner etc.
. Musta·jir:
PILLARS
 A person who takes on hire ² Lessee, tenant, renter etc.
r. Ma·jur:
CONDITION
 A thing given for rent
D. Al-Manfaah:
COMPARISON
 The benefit from a thing ² usufruct, services etc.
 . Ujrah:
AITAB  Price or fee given for the payment of rent or lease
. Sighah:
 Offer (Ijab) and Acceptance (Qabul)

†

  
 
Y Flows of al-Ijarah (Renting/ Leasing)
DEFINITION
Use of Manfaah

EVIDENCE
IJAB (Offer)

PILLARS
MA·JUR
MUAJJIR (THIN S/ ASSET)
CONDITION MUSTA·JIR
(OWNER)
MANFAAH
COMPARISON

QABUL (Acceptance)
AITAB
Ujrah (Fees/ Rental)

X


  
 
Y 
 

DEFINITION
ü. Al-Ajir:
EVIDENCE  The recipient of the payment ² Employee, hired worker etc.
. Musta·jir:
PILLARS  A person who gives something for hire² Employer etc.
r. Al-Amal:
CONDITION
 Service
D. Ujrah:
COMPARISON
 Payment of service
 . Sighah:
AITAB
 Offer (Ijab) and Acceptance (Qabul)

´
 ]   
 
ü. Since Ijarah is the sale of usufruct, majority of jurist forbid Ijarah
DEFINITION on trees and grapevines, since fruit are physical goods and
Ijarah is the sale of usufruct and not physical goods.
EVIDENCE . It is also not permissible to conduct Ijarah on animal for its milk;
ghee, wool or offspring; water in the river or well or canal since
all these are goods, and not eligible to be under contract of
PILLARS
Ijarah.
r. It is also not permitted to conduct ijarah on non-arable (not fit
CONDITION
for cultivation) land which have ponds for fishing, canes and
wildlife for hunting since all these are goods. It is not legal to
COMPARISON rent pond or lake for fishing.
D. Basic principle of Ijarah: 
        
AITAB 
      !
        


!
 
    
"
#         $

ü
] à   
 
Y     

!

DEFINITION ü. The property must be belong to lessor
. The property is known to both parties and is specified
EVIDENCE r. The property can be acquired by the lessee for his use until
the end of tenancy or lease
PILLARS D. The property should be in a good condition possible for
leasing
CONDITION  . It is the liability of the lessor to repair damages of the
property in order to make it possible for leasing
COMPARISON . It is the liability of the lessee to ensure the cleanliness and
safety of the property
AITAB

üü
] à   
 
†. The liability of the lessee over the property is under the concept
DEFINITION of trust (wadiah yadd amanah). However, in the case of
damages due to his negligence, the lessee is liable to pay the
EVIDENCE compensation (dhaman).
X. The lessee cannot lease the property to another tenant and the
second contract is considered as illegitimate.
PILLARS
´. The sale of a lease property is legitimate. However, the lessee
has a right to use the property until the lease contract has
CONDITION
expired, where the property will then be submitted to the buyer.
ü . The concept of al-Wadiah is applied when the lease contract has
COMPARISON expired and the lessee is still holding the property.

AITAB

ü
] à   
 
Y     
% 

DEFINITION ü. The use of the service (usufruct) can be valued with money.
. The usufruct must be valid according to Islamic commercial
EVIDENCE law.
r. The lessee should be able to make use of the property on
PILLARS lease.
D. The usage of the property should be made clear in order to
CONDITION avoid any argument.
 . The usufruct does not entitled the lessee to own the
COMPARISON
property.
. The lessee is not obliged to inform the lessor his intention for
using the property, except in the case of possible destruction.
AITAB
†. The usufruct of property beyond its normal usage is
considered as an act of intention.

ür
] à   
 
Y     

DEFINITION ü. The amount of payment of rent must be known. If the
payment is not in form of cash money, the goods in return
EVIDENCE must be specified its quantity, types and its characteristics.
. The payment of rent can be made in advance.
PILLARS r. If the condition for payment does not prescribed to be paid
in advance, the payment begins when usufruct started.
CONDITION D. If the payment is made on daily, weekly or monthly basis,
the payment should be made at the end of period unless
otherwise stated on the agreement.
COMPARISON
 . If the property cannot be used the payment is not obliged
upon the user.
AITAB

üD
] à   
 
Y     
 
DEFINITION  The contract of offer and acceptance should follow all the
conditions of the contract of sale in Islam; i.e. it should be on
EVIDENCE mutual acceptance, cannot be made in form of promises or an
order and the offer and acceptance should be the same.
PILLARS

CONDITION

COMPARISON

AITAB

ü 
à]      



& ' M' 


DEFINITION
Based solely on a DURATION Does not permit any time
predetermined time frame frame
EVIDENCE as part of the requirement of
the contract
PILLARS

A temporary contract with a NATURE A permanent contract


CONDITION specified time frame for its without any specified
expiry and due time period of expiration
COMPARISON

No time of ownership OWNERSHIP Transfer of ownership


AITAB occurs

Usufruct and ser ices SUBJECT Physical Goods and


property

ü
 à 
] 
ü. Operational Lease
 The bank purchases and maintains assets.
DEFINITION
 The bank rents these assets to other parties on terms and conditions
agreed upon for a specific time.
 After the termination of the period the asset is returned to the bank. The
EVIDENCE bank then leases the same asset to a new lessee.
 The bank bears the risk of recession or diminishing demand for these
assets.
PILLARS  At the end the bank may choose to scrap or dispose the asset

CONDITION . Hire-purchase-Financial Lease


 It refers to a type of ijarah that ends with ownership.
 The bank purchases the asset based on a promise from a customer.
COMPARISON  The customer promises to own the asset through lease.
 The asset will not be returned to the bank at the end of the lease period,
as is the case in operational lease, but will be bought by the lessee.
AITAB  The rental is calculated based on the value of the asset which is
financed, amount of rent, and the period of financing.
r. Operational lease is different from financial lease in a way that the former
does not offer an option to the customer to buy the leased asset at the end of
the lease period while in the latter the option is offered. If a lessee chooses
to buy the asset a new contract will be concluded.
ü†

    
 
Y AITAB also known as ijarah wa iqtina· (
 ) or al-ijarah
DEFINITION muntahiya bi-tamlik (     )
Y Definition:
EVIDENCE  Owning the benefit of certain assets for a specific period of
time, by paying an agreed sums of rental, with an agreement
PILLARS that the owner will transfer the rented asset to the hirer at the
end of the agreed period or during the period, provided all
rental payments or installments have been made in entirety
CONDITION

Y In theory, the contract of AITAB shall consist of two different


COMPARISON
contracts, namely:
ü. The contract of lease (al-ijarah ¶ain)
AITAB
. The contract of sale (al-bay·)
Y AITAB is a contract of leasing with a promise to sell the asset.

üX

  
Y In AITAB, the contract of al-ijarah runs separately from the
DEFINITION contract of al-bay·. These stages are:
 Stage ü: Executing the contract of true leasing (al-ijarah ¶ain)
EVIDENCE  Stage : Executing the contract of sale (al-bay·) at a nominal
value agreed upon by both parties.
PILLARS

CONDITION

COMPARISON

AITAB

ü´

  

üst: Contract of al-ijarah


DEFINITION
ü)Lease Agreement
EVIDENCE ) Rental Payment

PILLARS

CONDITION FINANCIER ASSET CUSTOMER

COMPARISON

r) Sale Agreement
AITAB
D) Sale Price

nd : Contract of al-bay·


à  ] 

DEFINITION

EVIDENCE

PILLARS

CONDITION Y
COMPARISON

AITAB