Assignment

Subject:

Islamic Finance Theory and Practices

Submitted to:

Sir Khalid Hussain

NAME Enrollment no:

Muhammad Basit 01-221182-022

Summary of Ijarah:

Part-1:

Part one describe introduction of ijarah in ijarah first it’s define ijarah is an exchange transaction
in which a known benefit arising from a specified asset is made available in return for a payment.
Second, they should describe types of ijarah it include ijarah Tul Aamaal, ijarah Tul Manaafay,
standard ijarah, ijarah Wa Iqtina, Ijarah Tul Ashkhaas it also include Ajeer-Khaas, Ajeer-Al-
Aam, and types of lease of usufruct which include lease of specific asset, lease asset based on
specification. Third, the principal of ijarah are legal title, possession, maintenance, earnest
money, insurance, undivided share in lease. Fourth is rental and remuneration and fifth is default
in ijarah.

Ijarah Tul Aamaal:

So first is ijarah Tul Aamaal, ijarah to employ the services of person on wages given to him as
consideration for his hired services.

For Example:

A person hire the agent for his representation of code of conduct and make a contract providing
agreed service to employer on wages.

Ijarah Tul Manaafay:

Ijarah Tul Manaafay refers to execute transfer of asset from lessor to lessee and it deals in real
asset like house only usufruct of asset is transferred to lessee and not title of ownership.

For Example:

you want to buy an house on rent you make a contract with lessor providing house to lessee a
legal document is transfer they will only give you usufruct of house for using the house and
paying rent but ownership is remain with lessor.

Standard ijarah:

Standard ijarah lease benefit from asset but no transfer of ownership. E.g car on rent to lessee for
month and charge the rent but not give the ownership remain with lessor.

Ijarah WA Iqtina:

Ijarah WA Iqtina conducted solely for transferring ownership to lessee. E.g you buy a house for
bank on lease contract the bank at the end of full-payment paid by lessee transfer ownership to
lessee.
Ijarah tu Ashkhaas:

Ajeer-Khaas:

Ajeer-Khaas is employee serving one beneficiary for specified term. E.g client hire lawyer to for
his case until guide to other client.

Ajeer-Al-Aam:

Ajeer-Al-Aam is employee working for multiple employers. E.g A person hired by multiple
company and get paid for it.

Lease of specific asset:

Lease of specific asset include items for car like 4 cylinder, sunroof, 5-speed manual
transmission, Alloy wheels, Leather interiors, Side curtain airbags, Anti-lock braking (ABS).

Legal title:

First legal title own by lessor and if my own by lessee exchange document and lessee transfer of
counter bound to lessor.

Possession:

Second possession in case of car dealers transfer car to financial institution and transfer car to
client.

Maintenance:

Third, the maintenance depends on ownership asset between lessor and lessee where lessee
responsible for regular maintenance e.g. fuel, oil etc. but lessor responsible to full-fill all
requirement e.g. car engine down etc.

Earnest money:

Fourth earnest money received from client as security serves as compensation if lessee back out
from entering into or computing an ijarah also known as Hamish Jiddiah.

Insurance:

Fifth is insurance is subject matter Takaful to safeguard of lessor.

Undivided share:

Sixth undivided share in lease is different suppose two brother there 80:20 ratio and lessee is
allowed to also involve third-party lessee but not leased back to lessor.
Rental and Remuneration:

Fourth is rental and remuneration where benchmark acknowledges standard (LIBOR) and expert
appraisal is set on fixed rent, paid in advance lump sum.

Default in ijarah:

Fifth is default in ijarah like other Islamic financial contracts a penalty for default in payment
cannot be enforced. Part of ijarah lessor right to reclaim the asset but Islamic bank and scholar
said you should wait for lessee financing position to improve.

Part-2:

Part two describe how does ijarah work it include rights and obligations of lessor and lessee, sub-
leasing, extending and renewing ijarah contract, transfer of ownership, negligence in ijarah,
termination of ijarah.

Rights and obligations:

First rights and obligations of lessor and lessee is risk is associated with asset borne lessor,
maintenance and insurance cost; lessor delivers asset and necessary items to transfer usufruct.

Sub-leasing:

Second sub-leasing asset subleased by lessee to third party with lessor consent. But not leased
back to lessor.

Extending and Renewing ijarah:

Third is extending and renewing at maturity client request extension not needed new ijarah you
should renewed or extended existing ijarah.

Transfer of ownership:

Fourth transfers of ownership separate document independent of ijarah lessor undertake to

purchase at the end of lease and price may be actual cost of asset and not nominal value. Lessor
may gift asset at end-term but asset sold to client at period end to transfer ownership.
Negligence:

Fifth negligence lessee responsible for maintenance and lessor may not charge for unusable
asset.

Termination of ijarah:

And last termination of ijarah contract not terminated unilaterally only mutual consent it include
condition related to automatic termination of lessee and lessor. Lessee termination includes non-
compliance, losses sanity, lessee passes away, and lessor include return asset demand for
compensation of defect period, lease may not rescind contract.