IJARAH LEASING

(Sewa atau Pajak)

AL IJARAH
A contract is where the financier
buys and leases equipment or other
assets to the business owner for a fee
or more often called rental income.
The duration of the lease as well as
the fee must be set in advance and
mutually agreed.

Jenis-jenis IJARAH
Ijarah Jasa (Ijarah ala al amal)
Ijarah Muntahiyah bi alTamlik
Al-Ijarah wal-`Iqtina

1. Ijarah ala al amal - services

To employ the services of a person on wages
given to him as a consideration for his hired
services.
Someone else hires the services of a person.
(Example: a doctor, a lawyer, a teacher, a laborer,
or any other person who can render some
valuable services).
The employer Mustajir
The employee Ajir

2. Ijarah Muntahiyah bi alTamlik

Assets and properties
It is not relate to the services of human
beings.
To transfer the asset or property to
another person in exchanged for rent
claimed.
Another word Leasing
Lessor Mujir
Lessee Mustajir
Rent payable to lessor Ujrah

3. Al-Ijarah wal-`Iqtina
(Lease to Purchase or Hire Purchase)
A contract is just the same as that of the AlIjarah except that the business owner is
committed to buying the equipment at the
end of the lease period.
Fees previously paid constitute part of the
purchase price.
This type of lease to purchase agreement is
commonly used for home financing.

The leasing contract must meet the following

conditions:
The service that the asset is supposed to provide
and for which it is being rented should be
definitely and clearly known to both parties.
The asset remains in the ownership of the lessor
who is responsible for its maintenance so that it
continues to give the service for which it was
rented.
The leasing contract is terminated as soon as the
asset ceases to give the service for which it was
rented.

Continued
If the asset becomes damaged during the period of
the contract, the contract will remain valid.
The price of an asset that may be sold to the
lessee at the expiry of the contract cannot be predetermined.
It can be determined only at the time of the expiry
of the contract.

Rules of Ijarah
Leasing is a contract whereby the owner of something
transfers its asset/property to another person for an
agreed period, at an agreed consideration.
The subject of lease must have a valuable use.
Therefore, things having no usufruct at all cannot be
leased.

Rules of Ijarah
It is necessary for a valid contract of lease that the
corpus (quantity / amount) of the leased property
remains in the ownership of the seller, and only its
usufruct is transferred to the lessee.
Thus, anything which cannot be used without
consuming cannot be leased out.
Therefore, the lease cannot be affect in respect of
money, eatables, fuel and ammunition etc. because
their use is not possible unless they are consumed.

Rules of Ijarah
As the corpus of the leased property remains in the
ownership of the lessor, all the liabilities emerging from
the ownership shall be borne by the lessor, but the
liabilities referable to the use of property shall be borne
by the lessee.
Example:
A has leased his house to B. The taxes referable to the
property shall be borne by A, while the water tax,
electricity bills and all expenses referable to the use of
the house shall be borne by B, the lessee.

Rules of Ijarah
The period of lease must be determined in clear terms.
The lessee cannot use the leased asset for any
purpose other than the purpose specified in the lease
agreement. If no such purpose is specified in the
agreement, the lessee can use it for whatever purpose
it is used in the normal course.
However, if he wishes to use it for an abnormal
purpose, he cannot do unless the lessor allows him in
express terms.

Rules of Ijarah
The lessee is liable to compensate the lessor for every
harm to the leased asset caused by any misuse or
negligence on the part of the lessee.
The leased asset shall be remained in the risk of the
lessor throughout the lease period in the sense that
any harm or loss caused by the factors beyond the
control of the lessee shall be borne by the lessor.

Rules of Ijarah
A property jointly owned by two or more
persons can be leased out, and the
rental shall be distributed between all the
joint owners according to the proportion
of their respective shares in the property.
A joint owner of a property can lease his
proportionate share to his co-sharer only,
and not to any other person.

Akad Ijarah Berakhir

Objek hilang/lenyap : terbakar, faktor
alam
Habis masa waktunya
Salah satu pihak yang wafat dapat
dialihkan pada ahli warisnya
Objek disita.

Determination of Rental
Must be determined at the time of
contract for the whole period of the
lease.
It can be fix different amounts of rent for
different phases during the lease period,
depends as specified in the agreement.

EXAMPLE 1:
A leases his house for B for a total
period of 5 years.
The rent for the first year is fixed
RM2000 per month, and the rent of
every subsequent year shall be 10%
more than the previous one.
This lease is VALID.

EXAMPLE 2:
A now puts a condition in the agreement
that the rent of RM2,000 per month is
fixed for the first year only.
The rent for the subsequent years shall
be fixed each year at the option of the
lessor.
This lease is VOID- because it is
uncertain.

Differences between
Leasing and Ijarah

19

Leasing/Ijarah Contract
Conventional Leasing

Islamic Ijarah

There are two types of

contracts, Financial lease
and loan for car financing.
Both these contracts contain
conditions that are
contravenes with the Islamic
Sharia'h.

The Ijarah contract does

not contain any condition
that makes the contract
void
under
Sharia'h
perspective.

Financing lease contains

conditions of hire purchase,
which is not permissible by
Sharia'h.
Car financing or loan
agreement contains
conditions of interest.
Interest is considered Riba

20

Rights & Liabilities of Lessor and Lessee

Conventional Leasing

Ijarah

In
Conventional
Leasing
Products, the Customer is
responsible for all kinds of
losses or damages to the Leased
asset,
irrespective
of
the
circumstances.

All risks pertaining to

ownership are borne by
Lessor. Customer only
bears usage-related risks

If the insurance company does Lessor bears the risk of

not compensate the entire Insurance
claim
outstanding amount in case of settlement.
total loss, the customer is liable
to pay the balance.
21

Rentals recovery in case of theft and loss

Conventional Leasing

Ijarah

If the Leased Asset is

stolen
or
completely
destroyed,
the
conventional
leasing
company or Bank would
continue
charging
the
lease
rent
till
the
settlement
of
the
Insurance claim

Under
the
Islamic
Ijarah,
rent
is
consideration
for
usage of the leased
asset, and if the asset
has been stolen,
destroyed
or
temporarily
out
of
order and not in use of
Customer, the concept
of rental becomes void.
In
such
situations
rental is not charged22
from the lessee.

Penalty for late payment

Conventional Leasing

Ijarah

In
most
contemporary
financial leases, an extra
monetary amount is charged
if rent is not paid on time.
This extra amount is the
considered
Riba
and
is
Haram.

Under Ijarah, the Lessee

may be asked to undertake
that if he fails to pay rent on
its due date, he will pay a
certain amount to a charity
Fund,
which
will
be
administered through the
Islamic Bank.

This amount is taken by the

leasing institution into their For this purpose the bank
income.
maintains a charity fund
where such amounts may be
credited and disbursed for
charitable purposes.
23

Insurance premium
Conventional Leasing

Ijarah

Insurance is independent of the

lease contract. The insurance
expense of the asset is directly
borne by the lessee

Takaful
/
Insurance
should be at the expense
of the Lessor and not at
the
expense
of
the
lessee. The Lessor may
increase the lease rent
to recover any costs
incurred by him in
connection
with
the
asset. However, as a
matter of principal, the
cost should be paid for
24
by the Lessor.

Registration Charges
Conventional Leasing
Lessee is responsible for
the Registration of
Leased Vehicle.

Ijarah
The Leased
Asset(vehicle) is
registered in the name
of the Bank and
registration charges
are paid by the Bank
(Lessor).
The Lessor may
increase the lease rent
to recover any costs
incurred by him in
25

Purchase of asset
Conventional Leasing

Ijarah

Under conventional
leasing contracts, the
vehicle is automatically
transferred in the name of
the customer upon
completion of the lease
period, whether or not he
wants to purchase it.

There is not such clause

in the Ijarah Agreement
that Leased Asset will
automatically transfer
to Lessee.
Separate sale
agreement is required
to execute sale
transaction at the end of
lease term.
26

Commencement of Rentals
Conventional Leasing

Ijarah

In case of Booking of
Leased Asset, recovery
of Lease installment
commence after the
payment of cost of Asset
to manufacturer/dealer.

In case of Car Ijarah, the

recovery of rentals is
associated with delivery
of Leased Asset.
Rental recovery should
not be commenced
before the delivery of
Asset.

27

Signing of Lease Contract

Conventional Leasing
Lease Agreement can be
signed by the Lessee
and Lessee any time
even if the Leased Asset
is not owned by the
Customer.

Ijarah
In case of Ijarah, the
Ijarah Agreement can
not be signed by the
Lessor and Lessee
unless:
Asset has come in to
existence
Assets is in the
ownership of the
Lessor
28
Lessor has taken

Termination before delivery

Conventional Leasing
The customer will suffer
loss of interest paid during
the booking period
because installment
commence immediately
after payment of cost of
asset to the
Manufacturer/Dealer.

Ijarah
The loss of customer is
only limited to actual
loss, if any, suffered by
the Lessor on sale of
asset in the open
market.
Since the customer has
not paid any rental
during the booking
period, no other cash
loss is expected under 29

Documentation of IJARAH

IJARAH AGREEMENT
Ijarah

Agreement

is

the

basic

document which contains all terms

and conditions pertinent of Ijarah of
particular Asset(s).
Ijarah Agreement shall invariably be
signed after the Lessor has taken the
possession the Asset and not earlier.
31

ADDENDUMS TO IJARAH
AGREEMENT

Description of the Ijarah

Asset
Schedule

of

of

Ijarah

Rentals
Receipt of Asset
Demand Promissory Note
32

DESCRIPTION OF IJARAH
ASSET

This document contains the detailed

description about the Leased Asset agreed
between the parties e.g Name, Make
,Model,Engine No., Chassis No.,
Registration No. etc etc.

This documents shall be signed

signed after Delivery of asset to
the Lessee and not earlier.
33

SCHEDULE OF IJARAH
RENTALS
This schedule contains a table which
shows:
Amount of rental (Monthly/Quarterly/Half Yearly)
Date of Payment of each rental

This schedule will also contain the date

on which first rental is due.
This documents shall be signed
signed after Delivery of asset to the

34

RECEIPT OF ASSETS
This document confirms that customer has
taken the possession of Leased Asset as
described in the earlier document
Description of Ijarah Asset.
This document is only signed by the
Lessee on receipt of Asset, as an
acknowledgement of receipt of described
asset under Ijarah Contact.
35

PROMISSORY NOTE
After signing of Ijarah Agreement, the
amount of rentals become Debt (Dyan) to
the Lessee.
Promissory Note is Lessees
acknowledgement to Debt amount and its
promise to pay.

36

UNDERTAKING TO PURCHASE LEASED

ASSET

This documents contains undertaking

from the Lessee that he/it will purchase
the Leased asset on the purchase Price
corresponding to the Purchase Date.
This document contains a schedule which
shows Purchase Price(s) during the
Ijarah term on which the Lessee can
purchase the asset by making lump sum
payment.
37

OTHER DOCUMENTS

Undertaking for Personal use of

Ijarah Asset
Trust Receipt
Authorization to Take possession
of Leased Asset
Sale Deed
38

End of Lecture