Chapter 36

Application of Hiyal (Legal Stratagems)

on Al-Ijarah-Based Contract in Islamic
Financial Institution in Malaysia

Mohd Ashrof Zaki Bin Yaakob, Mohamad Mahyuddin Khalid,

Mohd Dasuqkhi Mohd Sirajuddin, Muhamad Rahimi Osman,
Mohd Asmadi Yakob, Azri Bhari, Nurulaina Saidin,
Mohd Solahuddin Shahruddin and Ishak Suliaman

Abstract Hiyal (legal stratagems) is one of the concepts being applied in struc-
turing Islamic banking products to cater the needs of Muslim consumers especially
in Malaysia. However, the application of Hiyal in structuring Islamic banking
products creates various reactions amongst Muslim scholars about the permissi-
bility of its application. Acceptance of the concept is conditional so that it does not
overshadow the ruling of Islamic jurisprudence which is more signicant. This
article briefly explains the concept of Hiyal and evaluates its debate amongst

M.A.Z.B. Yaakob (&)
M.M. Khalid
M.D. Mohd Sirajuddin
M.R. Osman
M.A. Yakob

A. Bhari
N. Saidin
Academy of Contemporary Islamic Studies, Universiti Teknologi MARA,
40450 Shah Alam, Malaysia
e-mail: ashrof@salam.uitm.edu.my
M.M. Khalid
e-mail: emkay@salam.uitm.edu.my
M.D. Mohd Sirajuddin
e-mail: dasuqkhi@salam.uitm.edu.my
M.R. Osman
e-mail: rahimi313@salam.uitm.edu.my
M.A. Yakob
e-mail: asmadi@salam.uitm.edu.my
A. Bhari
e-mail: azrib178@salam.uitm.edu.my
N. Saidin
e-mail: asso_smile@yahoo.com
M.S. Shahruddin
I. Suliaman
Academy of Islamic Studies, Universiti of Malaya, 50603 Kuala Lumpur, Malaysia
e-mail: msolahuddin@gmail.com
I. Suliaman
e-mail: ishakhs@um.edu.my

Springer Science+Business Media Singapore 2016 391

S.K. Ab. Manan et al. (eds.), Contemporary Issues and Development
in the Global Halal Industry, DOI 10.1007/978-981-10-1452-9_36
392 M.A.Z.B. Yaakob et al.

Islamic scholars about permissibility of Hiyal acceptance in structuring Islamic

nancial product. The article also explains about various al-Ijarah contracts offered
by Islamic banks in Malaysia and analyses the application of Hiyal in the products
offered. Focus is given to the al-Ijarah-based contract because it is always applied
in structuring Islamic banking products due to its flexibility and easy to be
manipulating to make existing products lawful with the help of Hiyal. The analysis
focuses on Hiyal in products based on al-Ijarah which is being applied and offered
in Islamic banks in Malaysia.

Keywords Al-Ijarah
Contract
Financial institution
Hiyal
Malaysia

36.1 Introduction

The concept of Hiyal (legal stratagems) is one of the matters discussed in depth
amongst Muslim scholars for a long time. The majority of the scholars reject the
application of Hiyal, whereas only small portion of scholars accepted it, but it is
also accompanied by some strict rules on the application and it is named as
Makharij. The application of Hiyal concept in the development of Islamic banking
products is not something new, but almost the majority of the current Islamic
banking products are structured on the application of Hiyal concept. Hiyal appli-
cation can solve the problem of structuring Islamic banking products which mostly
come from conventional products which obviously against Sharia law. Thus, the
Hiyal concept is indispensable in the process of Islamisation of conventional
instruments so that it is in line with Islamic law. The analysis will focus on
nancing contract which is based on al-Ijarah contract which is offered by Islamic
banks in Malaysia.
The word Hiyal comes from Arabic term which is plural noun (jama) for the
word Hilah which means skill and ability in administering something with excel-
lence (Ibn Manzur 1990). Hilah also means stratagems and efcient way to change
the facade of a plan or scheme, especially one used to outwit and opponent or
achieve and end (Majma al-Lughat al-Arabiyyah, n.d.). Based on the denition,
Hilah linguistically have two different connotations which is positive and negative
but in customary (Uruf) use if the word in general, negative connotation is more
dominant (Abdul Khir et al. 2011). However, in some circumstances, the appli-
cation of Hilah is also used in a positive context to represent wisdom in doing
something (Al-Asfahani, n.d.). The word Hilah is also used in Malay but with
different spelling which is Helah. According to fourth edition of Kamus Dewan,
Helah has two meanings: rst are ploy, stratagem, and artice; and second is made
up excuse or evasion (Dewan Bahasa dan Pustaka 2013).
Makharij come from the word makhraj which means way or exit route. None of
muslim scholars provide clear denition related to Makharij except for Imam
Muhammad al-Shaybani who is qh scholar from Hana school of thought
(mazhab) in his book entitled al-Makharij al-Hiyal (Abdul Khir et al. 2011).
36 Application of Hiyal (Legal Stratagems) on Al-Ijarah 393

According to al-Mawsuah al-Fiqhiyyah (Encyclopedia of Fiqh), muslim jurists or

fuqaha are referring Makharij as the allowed Hiyal (al-Hiyal al-Mubahah).
Whereas contemporary Muslim scholars dene Makharij as solution that is used to
come out from difculty to achieve and end that is in line with Maqasid al-Shariah
(The Shariah Objectives). Therefore, it is concluded that the relationship between
Hiyal and Makharij is a relationship between general and specic. Hiyal means
generally for ways that is allowed and also ways that is not allowed, whereas
Makharij is specic to only ways that is allowed (Abdul Khir et al. 2011). The
terminology of Hiyal is different between existing mazhabs; however, the clear
denition is given by contemporary Muslim scholars, amongst them is Ibn Ashur
who says that, Hiyal is doing acts which are prohibited by Islamic law in the form
that is permissible, or acts that are not allowed by the Islamic law in the form that is
permitted to achieve a particular purpose (Ibn Ashur 1998).
Based on the denition of Hiyal and Makharij above, the concept that is being
used in the construction of Islamic banking products today surely refers to the
aforementioned denition. However, questions that may arise is whether the
application of Hiyal and Makharij in producing Islamic banking products today is
in accordance with the application of Hiyal and Makharij like the one allowed by
Islamic law? Or is it only a way to Islamise or to make halal or lawful of unlawful
or haram conventional instruments so that the instruments become lawful or
shariah-compliant?

36.2 Complication of Hiyal on Islamic Finance in Malaysia

Islamic compliances in Islamic banking become a very controversial subject, and it

has been discussed for a long time by Islamic scholars and intellectuals. Some of
the scholars argued that the current Islamic banking that is being practiced nowa-
days is not Islamic in its true sense. The biggest opposition is the excessive reliance
on the application of Hiyal by the Islamic banks, for instance the use of stratagems
and artice to circumvent the restrictions of Islamic law especially related to riba.
They also claimed that the current instruments of Murabahah and Ijarah use the
application of Hiyal and it is not Islamic and not the alternative for the conventional
banking (Mansoori 2011). The argument is also based on a fatwa issued on the 29
August 2008 for the Muslim scholars in a renowned conference in Pakistan that
declared the nowadays Islamic banking is not Islamic. The main objection that led
to this rejection is due to the reliance on Hiyal as the main structure that actually
ignores the main purpose of shariah. The resulting product may meet Islamic law,
but it ignores the spirit and intent of the original Islamic law itself (Mansoori 2011).
For example in the contract of Al-Ijarah Thumma Al-Bay (AITAB) which is
also known as Islamic hire purchase. Hiyal is used in this transaction, which is the
main purpose of the contacts is not to hire but to sell product after the rental
expired. Hiyal or stratagems will be obvious if the customer fails to pay the rent,
the customer will be forced to buy the product at a price set by the bank. This shows
394 M.A.Z.B. Yaakob et al.

that that main purpose behind the contract of al-Ijarah is to provide loans to
customer and the pronouncement of al-Ijarah is used as fraud (Muneeza 2011).
Therefore, the purpose of the article is to identify whether the offered Islamic
banking products or instruments especially contracts based on al-Ijarah has used
Hiyal that ignores the spirit and the real purpose of shariah, or it uses an ingenious
solving method which is also in Islamic legislation it is known as Makharij (way
out without ignoring spirit and main purpose of shariah) which is allowed by
scholars.

36.3 Permissibility of Al-Ijarah Contract in Islamic

Finance Product

Al-Ijarah comes from the word al-Ujr which means repayment of an act (Ibn
Manzur 1990). Al-Ijarah also means something exchanged or given as repayment
for an act (Ibn Manzur 1990; Abd al-Qadir 1993). It also means sales of usufruct
(manfaah) (al-Kasani, n.d., Abd al-Wahid, 1970), whereas Kamus Dewan denes
al-Ijarah as pay, daily wage, and rent (Dewan Bahasa dan Pustaka 2013). Whereas
the terminology of al-Ijarah means replacing property with usufruct and it is one of
the types of sales or better known as sales of usufruct (Ayyub 2003). In general,
there is not much difference between the meaning of al-Ijarah from its termi-
nologies and linguistic meaning. However, the denition given is different in terms
of the word according to school of thought (mazhab), but overall it gives the same
meaning.
(i) Shaie: Al-Ijarah means aqad (contract) to obtain a certain service (usu-
fruct) that can be paid and made halal with certain goods (Al-Sharbini, n.d.).
(ii) Hana: Al-Ijarah means aqad (contract) upon certain usufruct with certain
exchange (Al-Sarakhsi 1993). Besides, there are others who dened al-
Ijarah as ownership of certain usufruct with certain exchange (Al-Jaziri
2005).
(iii) Maliki: Al-Ijarah owning usufruct that is permissible in a certain period of
time with certain exchange (Al-Dusuqi, n.d.).
(iv) Hambali: Al-Ijarah means aqad (contract) that involves usufruct that is
permissible and known, in a certain period of time, whether from object or
certain job, or something that the nature is determined, with certain exchange
(Al-Maqdisi 1999).
In conclusion, after all the given denitions are carefully examined according to
the mainstream mazhabs, it is found that there are a few important elements that are
similar that is mentioned in every denition from the mazhabs even though it is said
differently. There are a few similar elements which are it is a contract that brings to
the transfer of ownership from the owner to the usufruct consumer, it is a contact of
exchange like buying and selling only that in al-Ijarah contract something that is
36 Application of Hiyal (Legal Stratagems) on Al-Ijarah 395

contracted is usufruct not goods or property. It is also bound to period of the

usufruct used and al-Ijarah contract can appear to house, vehicle, land and many
others (El-Muhammady 2006).

36.4 The Application of Al-Ijarah Contract in Malaysia

Islamic Banking Act 1984 provides that Bank Islam must adhere to shariah law.
Therefore, Islamic principles must be applied in its operations and sharia principles
in Islamic commercial contracts can be applied for the need of Islamic banking
products contract because it is found that the names of the offered products are
using certain contract principles which is available in shariah (El-Muhammady
2006).
Al-Ijarah is a contract that change property with usufruct and it is one of the
types of sales or better known as sales of usufruct (Ayyub 2003). In bank context,
the practice of al-Ijarah contract is done by the Islamic bank buys the assets that the
customer need, and then, the asset is rented to its customer for a stipulated period of
time and also with set conditions (El-Muhammady 2006). The bank customer will
pay the rent on their use of asset according to the agreed rate. After the completion
of the rental period, the asset will be returned to the bank, or sold to the tenant. If
the customer wants to own the rented asset after completion of rental period, the
bank can allow the ownership of the asset by using the principle of al-Ijarah wa al-
Iqtina, where the asset is sold by the bank to the tenant with agreed price, and the
rent paid by the tenant is included as part of the buying price of the asset
(El-Muhammady 2006).
In Malaysia, nancing products based on al-Ijarah contract which is offered at
Islamic banking institutions is based on nancial lease operation. Financing in the
form of nancial lease is appropriate with Islamic banking function as nancial
intermediaries. The features of nancial lease are clearly seen from the angle of
payment period. All al-Ijarah nancing offered by Islamic banks are appropriate for
moderate period of time. From the angle of usufruct that is being leased, al-Ijarah
nancing in Islamic banks focuses on the outcome benet from the use of the assets
(Abd Ghafar 2007).
While the modus operandi of al-Ijarah contract-based nancing carried out by
the Islamic banks is not much different from the method of nancial lease opera-
tions conducted by conventional banks. Al-Ijarah nancing standard operational
procedure in Islamic banks in Malaysia is prepared through a number of ways either
by modication of nancial lease operation of conventional banks, adaptation of
nancial lease operation of Islamic banks practiced in other country or using the
existing practice in Islamic Bank in the country (Abd Ghafar 2007). Al-Ijarah
contracts that are often used in most of the Islamic nancial institution in Malaysia
can be described by the following diagram (Diagrams 9.1, 9.2, 9.3, 9.4, and 9.5).
Based on all applications of al-Ijarah above, it is clearly shown that the appli-
cation of Hiyal is extensively applied in structuring products based on al-Ijarah.
396 M.A.Z.B. Yaakob et al.

2 Purchase payment of asset

1 Purchase of asset
Customer Bank
3 Rent of asset

4 Rental payment of asset

1. Bank buys assets from customer or bank set to customers to buy certain items
on their behalf.
2. Bank pays the customer / seller the price of asset
3. The Bank rents the asset to the customer for a period of time determined by
the terms of the rent and other terms a greed by both parties.
4. Customer pays rent in accordance with what is agreed in the terms and
conditions stipulated.

Diagram 9.1 Al-Ijarah nancing (xed lease rental contract). (1) The bank buys assets from
customer or bank set to customers to buy certain items on their behalf. (2) The bank pays the
customer/seller the price of asset. (3) The bank rents the asset to the customer for a period of time
determined by the terms of the rent and other terms agreed by both parties. (4) The customer pays
rent in accordance with what is agreed in the terms and conditions stipulated

2 Purchase payment of asset

1 Purchase of asset
Customer Bank
3 Rental of asset

4 Rental payment of asset

5 Advice service to customer for changes
in rent

1. Bank buys assets from customer or bank set to customers to buy certain items
on their behalf.
2. Bank pays the customer / seller the price of asset
3. The Bank rents the asset to the customer for a period of time determined by
the terms of the rent and other terms agreed by both parties.
4. Customer pays rent in accordance with what is agreed in the terms and
conditions stipulated.

Diagram 9.2 Al-Ijarah nancing (variable/floating lease rental contract). (1) The bank buys
assets from customer or bank set to customers to buy certain items on their behalf. (2) The bank
pays the customer/seller the price of asset. (3) The bank rents the asset to the customer for a period
of time determined by the terms of the rent and other terms agreed by both parties. (4) The
customer pays rent in accordance with what is agreed in the terms and conditions stipulated. (5)
From time to time, the bank will re-evaluate rental payment and changes in the rental. The bank
will advise the customer with the new sum of rental payment with appropriate period of time
36 Application of Hiyal (Legal Stratagems) on Al-Ijarah 397

1 Purchase of asset
Customer Bank

2 Cash payment of purchased asset

3 Rental of asset

4 Rental payment
1. Bank buys assets asked by the customer.
2. Bank pays the purchased price to the customer by cash.
3. The Bank rents the asset to the customer for a period of time determined by the terms of
the rent and other terms agreed by both parties.
4. The customer pays the rent according to the agreed terms and conditions that are
stipulated.

Diagram 9.3 Al-Ijarah nancing (sale and leaseback al-Ijarah). (1) The bank buys assets asked
by the customer. (2) The bank pays the purchased price to the customer by cash. (3) The bank rents
the asset to the customer for a period of time determined by the terms of the rent and other terms
agreed by both parties. (4) The customer pays the rent according to the agreed terms and
conditions that are stipulated

2 Purchase payment of asset

1 Purchase of asset
Customer Bank
3 Rental of asset

4 Rental payment of asset

5 Customer purchase asset at low price

1. Bank buys assets from customer or bank set to customers to buy certain items on their
behalf.
2. Bank pays the customer/ seller the price of asset
3. The Bank rents the asset to the customer for a period of time determined by the terms of
the rent and other terms agreed by both parties.
4. Customer pays rent in accordance with what is agreed in the terms and conditions
stipulated.
5. Customer will later buy the asset from the bank at the agreed price (normally at the lowest
price) with all the rental payment made before is inclusive of the price to be paid.

Diagram 9.4 Al-Ijarah Thumma al-Bay (AITAB) (Al-Ijarah Thumma Bay Hire Purchase-i
(HP-i)xed rate). (1) The bank buys assets from customer or bank set to customers to buy
certain items on their behalf. (2) The bank pays the customer/seller the price of asset. (3) The bank
rents the asset to the customer for a period of time determined by the terms of the rent and other
terms agreed by both parties. (4) The customer pays rent in accordance with what is agreed in the
terms and conditions stipulated. (5) The customer will later buy the asset from the bank at the
agreed price (normally at the lowest price) with all the rental payment made before is inclusive of
the price to be paid
398 M.A.Z.B. Yaakob et al.

2 Purchase payment of asset

1 Purchase of asset
Customer Bank
3 Rental of asset

4 Rental payment
5 Advice to customer for changes in
rental

6 Customer purchase asset at low price

1. Bank buys assets from customer or bank set to customers to buy certain items on their
behalf.
2. Bank pays the customer/ seller the price of asset
3. The Bank rents the asset to the customer for a period of time determined by the terms of
the rent and other terms agreed by both parties.
4. Customer pays rent in accordance with what is agreed in the terms and conditions
stipulated.
5. From time to time, the bank will re-evaluate rental payment and changes in the rental.
Bank will advise the customer with the new sum of rental payment with appropriate
period of time.
6. Customer will later buy the asset from the bank at the agreed price (normally at the lowest
price) with all the rental payment made before is inclusive of the price to be paid.

Diagram 9.5 Al-Ijarah Thumma al-Bay (AITAB) (Al-Ijarah Thumma Bay Hire Purchase-i
(HP-i)variable/floating rate). (1) The bank buys assets from customer or bank set to customers to
buy certain items on their behalf. (2) The bank pays the customer/seller the price of asset. (3) The
bank rents the asset to the customer for a period of time determined by the terms of the rent and
other terms agreed by both parties. (4) The customer pays rent in accordance with what is agreed in
the terms and conditions stipulated. (5) From time to time, the bank will re-evaluate rental payment
and changes in the rental. The bank will advise the customer with the new sum of rental payment
with appropriate period of time. (6) The customer will later buy the asset from the bank at the
agreed price (normally at the lowest price) with all the rental payment made before is inclusive of
the price to be paid

The genuine application of al-Ijarah supposedly involved owner and tenant,

however, in the banking applications above, the real focus is not to rent the goods
but as stratagems to Islamise the existing conventional banking products.

36.5 Conclusion

Of the debates placed in this article, al-Ijarah is one of the most important trans-
action and frequently used in current transaction (muamalah) particularly in relation
to leases. After viewing the core principle of al-Ijarah instrument in current
36 Application of Hiyal (Legal Stratagems) on Al-Ijarah 399

muamalah, it is in line with what is stated in the Prophets hadith and also what is
debated in the Islamic jurisprudent books. The transaction of al-Ijarah is placed in
the appropriate category which is commercial contracts which is in accordance with
the meaning of al-Ijarah itself whether through the perspective of hadith or Islamic
jurisprudence (qh). While the modus operandi and the applications are often used
in current muamalah, it is viewed as consistent with what can be understood from
the meaning of al-Ijarah despite the fact that it had been modied and
mix-and-matched amongst multiple transactions to create a new instrument.

Acknowledgements This research was nancially supported by the Research Acculturation

Grant Scheme (RAGS) of Ministry of Education of Malaysia (RAGS/2012/UITM/SS05/17) and
supported by Research Management Institute (RMI) of Universiti Teknologi MARA, Malaysia.

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