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Discussion on the topic of Ijarah mechanism

islami Bank Bangladesh Limited

Discussion on the topic of Ijarah

Mechanism
Md. Israfil Hossain
Principal Officer
IAD, Head Office
Definition of Ijarah: The term 'Ijarah' is an Arabic word which is derived from the word
'Ajr' or 'Ujrat'. Ajr or Ujrat means consideration, return, remuneration, wages or rent. Thus the
lexical meaning of Ijarah is to give something on rent. This means leasing , hiring or renting.
Actually Ijarah is a kind of sale in which only services are bought and sold, while in other kinds
of sale goods, assets, properties and moneys are sold and bought.
Sale Vs Ijarah~~~~~~~~~~~~ Ariyah Vs Ijarah
Shariah base of Ijarah: The Fuqaha (jurists) have considered Ijarah contract as a part of sale
transactions in its broad sense. They have established that Ijarah is a specific kind of sale
transaction and they are in complete consensus of the permissibility of Ijarah according to the
following texts of the Quran and the Sunnah.
Then if they give a suck to the children for you give them their payment and let each of you
accept the advice of the other in a just way(6.65). In another place the Quran clearly mentions
the contract mutually agreed upon by Musa (as) and Yakub (as) And said one of them (the two
women) O' my father! Hire him (Musa) verily a best men for you to hire is the strong, the
trustworthy (26:28). He (the father) said, I intend to wed one of these two daughters of mine to
you on condition that you serve me for eight years, but if you complete (it in) ten years it will be
(a favor) from you(27:28).
The Prophet (swa) also said, Give the hired (men) his due before his sweat to dry up. Thus
Ijarah is permitted on the basis of the Quran, Sunnah and Ijma of the Ummah.
Component of Ijrah: The elements or components of Ijarah found from the above discussion
may be enumerated as follows:
1. The contract: This includes Ijab (offer) and Kabul (acceptance).
2. The contracting parties: An Ijarah contract must have two parties: the lessor/hiree
(Ajir/Muajir) and the lessee/hirer (Mustajir).
3. The object: It means the non-fungible goods/assets/properties/a person or an animal, the
possession of which is handed over to the lessee/hirer to facilitate him to derive or extract
the utility/benefit/service from the same.

4. The subject matters of the contract: This includes the utility/benefit/service extracted
from the object, and the wages/rent/remuneration paid in exchange for
utility/benefit/service. These are bought and sold and are counter values for each other.
5. Period of contract: This means the duration of the contract. Sometimes a lease contract
may be for a particular piece of work and the mentioning of
the period is not needed there. In such a case the employee or labourer has to perform that work
in whatever time it may take. For example, a person may hire a car for going to Chittagong from
Dhaka. In that case, the owner of the car will take the hirer from Dhaka to Chittagong and
mentioning of duration is not required here.
Terms & conditions of affecting Ijarah: As a normal sale transaction the lease /Ijarah
contract is governed by all the rules of sale and by certain terms and conditions specially
prescribed for Ijarah. The terms and conditions of affecting Ijarah are as follows:
1. Rules regarding contract
2. Rules regarding contracting parties
3. Rules regarding the object
4. Rules regarding benefit.
5. Rules regarding rentals
6. Rules regarding lease period
7. Rules regarding expenses consequent to the ownership
8. Rules regarding penalty
9. Rules regarding insurance of the asset
10. Rules regarding termination of the lease
11. Rules regarding the residual value of the leased asset
12. Rules regarding sub-lease
Classification of Ijarah: Primarily Ijarah may be classified into Ijarah al Dimmah and
Ijarah al-Ain.
I. Ijarah al-Dimmah: Ijarah al-Dimmah is related with the buying and selling of services
of living beings, i.e., human beings and animals. It includes hiring of any person to
perform a specific job and hiring of an animal for specific use.
II. Ijarah al-Ain: The second type of Ijarah is related with the buying and selling of services
or usufruct of non-fungible goods like assets and properties, land, houses, machines and
tools etc. Here the Ijarah means to transfer the services or usufructs of a particular nonfungible goods to another person in exchange for an agreed upon price, which is called

rent. In this sense the term Ijarah is nearer to the English terms leasing, hiring or renting.
Here the individual or organization who leases/hires/rents out the property/asset is called
the Lessor/Hiree or Ajir/Muajir, the person or organization who takes the property/asset
on lease is called Lessee/Hirer or Mustajir; the price/consideration agreed upon and
paid is called rent or Ajr/Ujrat; and the service which is bought and sold is called the
benefit or maajur.
Ijarah may again be divided into (i) Ijarah al-Fard and (ii) Ijarah al-Musha.
Ijarah al-Fard: When only one person hires a property or asset, it is known as Ijarh al-Fard.
Ijarah al-Musha: When a group of person hires a property or asset, the Ijarah is called Ijarah alMusha.
Again Ijarah or leasing related with the services of non-fungible goods may be of two types : (i)
the financial lease and (ii) the operating lease.
i) Financial Lease: A financial lease involves a non-cancellable agreement between the
lessor and lessee for lease of a specific asset to the lessee for a long or an intermediate
term. The lessor retains the ownership of the asset but the lessee is given the exclusive
right to the use of the asset on payment of specific rentals. At the end of the lease period
the asset reverts to the lessor.
ii) Operating Lease: Operating lease differs from financial lease in two primary respects:
First, an operating lease is cancellable and is generally executed for a shorter period than
is a financial lease. Second, in an operating lease the lessor remains responsible virtually
for all expenses relating to the ownership of the asset.
Defective & Void Ijarah: An Ijarah contract may be either valid- sahih, void-batil, or
defective-fasid. A valid ijarah contract is that which is legal in both its fundamental and ancillary
components. A defective ijarah contract is that which is fundamentally, legally sound but that has
a forbidden characteristic, such as the absence of sufficient clarity, or an incongruous condition.
A void ijarah contract is that which is illegal in its fundamental and ancillary characteristics, such
as that which is contracted for a purpose that does not have legal sanction, such as a contract to
make statues, or that is in return for an unlawful consideration, such as carrion or blood.
The place where the rent to be paid: According to the usage of the term, wages or rent
(Ajr) is the price of an advantage or service or utilities. It is a condition that rent should be
known, assessable, identifiable and specifiable and be fixed at the time of contract for the whole
period of lease. Rent may be fixed on the basis of uit of time such as rent per hour, per day, per

month or per year etc. or it may be fixed on the basis of piece of work such as carrying 5 M.T. Of
M.S Rod by truck from Dhaka to Chittagong, printing of one format of a book etc.
Leasing of Commodity: This mode is being used by Islamic Banks to provide their
customers with short, medium and long-term financing to lease different items like equipment,
machinery, consumers' durable, computer, motor vehicles, real estates, infrastructure project and
any other suitable and acceptable item. If may also be applied in providing working capital to
industrial clients in the form of hiring labour by the bank and sub-lease them to the client.
Delivery of goods: The lessor is obliged to enable the lessee to utilize the usufruct of the
contracted asset i.e. by delivering the asset to him up to the end of the contract period or the
distance. Delivery includes accessories of the leased asset without which the intended usufruct is
not possible as per the prevailing practice. Delivery which enables usufruct entails that if any
casual incident occurs and prevents usufruct of the leased without being due to the act of the
lessee, should be corrected by the lessor, such as refurbishment of the residence or removal of
any defect that hampers dwelling.
Authority of the parties on the lease property after agreement : In an Ijarah contract, the
contracting parties are lessor and lessee (in case of non-fungible goods), or employee and
employer (in case of human beings) or hiree and hirer (in case of living beings). As an Ijarah
contract is the same as that of sale, so the parties to the contract are actually buyer and seller. So,
like all other sale contracts, in the Ijarah contract also the lessor and the lessee must fulfill the
conditions relating to themselves. That both of them must be same, must have attained the age of
puberty and the age of majority and also must be fully free or independent either to consent or
not to consent.
Paying back the lease-property: The rent or any part thereof may be payable in advance
before the delivery of the leased item to the lessee, but the amount so paid to the lessor shall
remain with him as 'on account' payment and shall be adjusted towards the rent after its being
due. If the total amount of rent paid in advance or any part of its remains unadjusted with rent
and the lease contract expires, the remaining amount should be paid back to the lessee.
Compensation of the lease property: No penalty or additional charge for delay in payment
of rent is allowed in Shariah, because the rent, after it becomes due, is a debt payable by the
lessee. Any additional charge on this debt for late payment is exactly the riba prohibited by the
holy Quran. However, as an alternative measure, the lessee may be asked to undertake that, if
he fails to pay the rent on its due date, he will pay certain amount to the charitable fund of the

institution which the institution will use for charitable purposes including interest-free loans to
the needy persons.