International Islamic University Islamabad

ISLAMIC LAW OF CONTRACTS AND BUSINESS

TRANSACTIONS
Submitted By:
Aneesa Ghani
4901-FMS/BBA/S17

Misbah Mehmood
4871-FMS/BBA/S17

Shandana Israr
4864-FMS/BBA/S17

Aimen Javed
4917-FMS/BBA/S17

Submitted To:
Ma’am Afshan Abbasi

Batch and Section:

BBA 36-A

Date:
11-12-18
IJARAH
(Leasing)
What is Ijarah?
Ijarah or also called Al Ijarah is trading a specified asset available in for a payment where the
ownership of the asset is not transferred. The Ijarah contract is essentially of the same design
as an instalment leasing agreement. This is similar to a type of leaser or mortgage loan with no
requirements for down payment, such as a rent-to-own arrangement.
In Ijarah, fixed assets are the subject of the lease, such can return to the lessor at the end of the
lease period, in which case the lease takes on the features of an operating lease and thus only a
part amortization of the leased asset's value results. In an alternative approach, the lessee can
agree at the outset to buy the asset at the end of the lease period in which case the lease takes
on the nature of a hire purchase known as ijara wa iqtina (literally, lease and ownership).

Major Conditions for Ijarah:

Transferring of usufruct of an asset to another person for an agreed period, at an agreed
consideration.
The Asset should be valuable, identified and quantified.
Anything which cannot be used without consuming cannot be leased out. e.g, Money, Wheat
etc.

Types of Ijarah:
Hiring/Employment: To employ/hire the service of a person on wages.
Leasing: To transfer the usufruct of a particular thing to another person in its exchange for a
rent.

Types of Leasing:
Operating Lease:
Simple rental agreement in which the leased asset remains in the ownership of lessor and
comes back to him after the lease period.
Hire - Purchase: Where the intention of lessee is to acquire the ownership of asset, but due to
certain reasons, and in particular, due to some tax concessions they show Ijarah and after the
lease period corpus of the leased asset transfers to the lessee without any new contract and
paid rental becomes price. It is not permissible.
Financial Lease:
The intention is same, only difference is that the corpus of leased asset is transferred to the
lessee by execution of sale agreement or by gift, lease agreement has an express clause to this
effect it is also impermissible for two reasons:
One transaction is tied up with another transaction.
Lessor does not bear the responsibility of lessor.

Basic Rules for Ijarah or Islamic Lease:

Rental of Lease:
 The rental must be determined at the time of contract.
 It is permissible that different amount of rent are fixed for different phases of rental period.
 It is permissible to tie up the rental amount with a variable benchmark, the ceiling and floor
should be determined.
 Rental will be charged when the Leased asset is handed over to the lessee and not from the
day the price has been paid.
 The lessor cannot increase the rent unilaterally, and any agreement to this effect is void.
Period of Lease:
 Period of lease must be determined in clear terms at the time of contract.
Lease for Specific Purpose Only:
 If no specific purpose is identified in the agreement, then it can be used for any purpose for
which it is used in normal course.
Responsibility of Lessor:
 As the owner of the leased asset lessor bears and assumes the full risk of the corpus of the
leased asset. If the asset is destroyed during the lease period, the lessor will suffer the loss.
 Similarly, if the leased asset looses its usufruct without any misuse or negligence on the part
of the lessee, the lessor can not claim the rent.
 Lessor 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: freight, custom duty and clearing charges.
 Taxes related to ownership and registration charges of car will be borne by the lessor,
including agent fee if any.
 Insurance of leased asset is responsibility of lessor. But he can appoint the lessee as an
agent to arrange insurance on behalf of him.
Responsibility of Lessee:
 The Ijarah lessee is liable to compensate the lessor for every harm to the leased asset
caused by any misuse or negligence.
 Taxes related to use of asset will be borne by the lessee.
 He is liable to the wear and tear which normally occurs during its use.
Determination of Rental:
 It is permissible in Ijarah that different amounts of rent are fixed for different phases during
the lease period, provided that the amount of rent for each phase is specifically agreed
upon at the time of affecting a lease.
 The determination of rental on the basis of the aggregate cost incurred in the purchase of
the asset by the lessor, as normally done in financial leases, is not against the rules of
Shariah.
 The lessor in Ijarah cannot increase the rent unilaterally, and any agreement to this effect is
void.
 The rent or any part thereof may be payable in advance before the delivery of the asset to
the lessee.
 The lease period shall commence from the date on which the leased asset has been
delivered to the lessee.

Question Answers
Question no 1
What is Meezan Car Ijarah?
Answer:
Car Ijarah is Meezan Bank’s car financing product and is Pakistan’s first Interest-free car
financing. It is based on the Islamic financing mode of Ijarah (leasing). This product is ideal for
individuals who want to get interest-free financing for acquiring a car.
Car Ijarah works through a car rental agreement, under which the Bank purchases the car and
rents it out to the customer for a period of 1 to 7 years, agreed at the time of the contract.
Upon completion of the Ijarah period, the vehicle will be sold at a token amount or gifted to the
customer.

Question no 2
Can you lease a car for one month?
Answer:
Car leasing is possible only when it’s under a time period of one year.

Question no 3
Why there is difference in theory and in practice?
Answer:
There is no difference between a theory and a practice as we have sharia advisors who help us
design our policies and products.

Question no 4
What is the difference between Normal Bank and Islamic Bank?
Answer:
There are two types of systems, financing system and leasing system. The difference between
both the banks is that the normal bank charges you interest in the form of instalment where as
in Islamic bank they charge you rent against the asset they have provided.

Question no 5
How does bank insurance work?
Answer:
The insurance is included in the instalment amount.

Answered by Manager Ali Hashim