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THE CONCEPT OF IJARA
Dr. Muhammad Zubair Usmani
Shar ia Advisor
Muslim Commercial Bank L td.
Jamia Darul Uloom Karachi
at AlHuda CIBE NIBAF I slamabad.
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BASIC RULES OF IJARA Transferring of usufruct not ownership
To another person for an agreed price, at an agreed consideration.
Subject of lease
Valuable, I denti f ied and Quanti f ied
Consumable things cannot be leased out
Anything which cannot be used without consuming cannot be leased
out; e.g., money, wheat etc.
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All Liabilities of ownership are borne by lessor
Corpus of leased property remains in the ownership of the seller.
Period of leaseMust be determined in clear terms at the time of contract
Lease for specific purpose only
I f no specif ic purpose is identi f ied in the agreement, then it can be
used for any purpose for which it is used in normal course
BASIC RULES OF IJARA
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BASIC RULES OF IJARA Lessee as Ameen
The lessee is l iable to compensate the lessor for every harm to the
leased asset caused by any misuse or negl igence. The leased assetshal l remain in the risk of the lessor throughout the lease period.
Lease of jointly owned property
I s permitted and rentals shal l be distr ibuted between all the jointowners according to the proportion of their respective shares in
the property.
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Determination of Rental
The rental must be determined at the time of contract for the whole
per iod of lease.
I t is permissible that dif ferent amounts of rent are f ixed for dif ferent
phases dur ing the lease per iod, provided that the amount of rent for
each phase is specif ically agreed upon at the time of effecting a lease.
The determination of rental on the basis of the aggregate cost
incur red in the pur chase of the asset by the lessor, as normally done
in f inancial leases, is not against the rules of Shar iah.
BASICRULES OF IJARA
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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 wi l l be charged when the Leased asset is handed
over to the lessee.
BASICRULES OF IJARA
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IJARAAS A MODE OF
FINANCING
Leasing should not be interest-based loan or
replacing interest with rent, rather it shouldcomply with all of the following conditions of
Islamic leasing:
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IJARA AS A MODE OF
FINANCING1. 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 thelessee
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. Di f ferent 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.
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IJARA AS A MODE OF
FINANCING4. Difference between Murabahah and leasing
A Murabahah attributed to a future date is invalid inShariah. But leasing can be attributed to a future date.
A Murabaha can not be transacted on a future date as thesale would be executed simultaneously after takingdelivery from the supplier and seller would never bear its
risk which Shariah does not permit . But in leasing it ispermissible, because in leasing the asset remains under therisk and ownership of the lessor throughout the leasing
period.
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IJARA AS A MODE OF
FINANCING5. 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 assetby his misuse or negligence. He can also be made liable to
any normally occurring wear and tear.
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IJARA AS A MODE OF
FINANCING7. Var iable Rentals in Long Term Leases
In this case the lessor has two options:
A lease contract can have a condition that the rent shall beincreased 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 mutualconsent
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IJARA AS A MODE OF
FINANCING8. Penalty for late payment of Rent
The lessor cannot charge an additional amount in case thelessee delays payment of the rent.Penalty of late payment
is given to charity by lessee9. Termination of Lease
If the lessee contravenes any term of the agreement, thelessor has a right to terminate the lease contract
unilaterally. If not then it can be terminated throughmutual consent only. However, in such a case he cannotcharge rentals of remaining period. Further more, thedestruction of the asset also terminates the lease. In theevent of lessees death the lease will also be terminated
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IJARA AS A MODE OF
FINANCING10. Insurance of the assets
If the leased property is insured under the Islamic mode of Takaful, itshould be at the expense of the lessor and not at the expense of thelessee
11. The residual value of the leased asset
Through a mutual agreement of Lease, after the expiry of the leaseperiod, the corpus of the leased asset cannot be transferred to thelessee, 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 apre-condition for the other.
However, the lessor may enter into a unilateral undertaking to sell theleased asset to the lessee at the end of the lease period. Thisundertaking will be binding on the lessor only.
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IJARA AS A MODE OF
FINANCING12. I jarah Wa Iqtina
The lessor may sign a separate promise to gift/Sale the leased asset tothe lessee at the end of the lease period, subject to his payment of allamounts of rent. The validity of this arrangement is subject to twobasic conditions:
Firstly, the agreement of Ijarah itself should not be subjected tosigning this promise of sale or gift.
Secondly, the promise should be unilateral and binding on thepromisor only.
13. Sub-Lease
If the leased asset is used differently by different users, the lesseecannot sub-lease the leased asset except with the express permission ofthe lessor.
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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
SALE AND LEASE BACK
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