Types of Al-Ijarah Contract

There are two types of Al-Ijarah contract in general, which are:

1. Ijarah Al-amal (Hiring a person)

This refers to a contract whereby someone employs or recruits a person for
compensation. The recruited individual offers his services in order to be compensated.
“Al-mustajir” is the name of the employer in this context, and “Ajeer” is the name of
the employee. The payment made to the employee is known as “Ujrah”. This kind of
Ijarah is widespread and comes in a variety of shapes. Every agreement where a
person is engaged to perform services and receive compensation in exchange for their
services and knowledge falls under this category. He could be a lawyer, doctor,
teacher, or any other professional who can provide some useful services.

2. Ijarah Al-ayn (Lease of an asset)

This alludes to an agreement in which one party leases his property to a
different party in exchange for rental. For instance, if someone lends their car to
someone else, they receive rent in return for the usage of the car. The lessor is still the
owner of the asset under this agreement. However, the asset is given to the lessee in
order for them to use it and gain from it. The asset is restored to the lessor, who is the
owner, after the Ijarah time is through.

For both sorts of Ijarah, the jurists and intellectuals have established certain guidelines
whereby Ijarah consist of these components:
(a) the contracting parties, namely the lessor and lessee;
(b) ijab (offer) and qabul (acceptance);
(c) the asset and usufruct; and
(d) rent
The second kind of Ijarah is more practical and applicable, though, due to the fact
that it is a popular Islamic financial institution's investment and financing method. However,
there are several Al-Ijarah contracts in islamic finance, which are:

1. Al-Ijarah Thumma Al-Bay (AITAB)

This type of al-ijarah comprises two separate contracts, which are Ijarah and
Al-Bai or refers as lease or hire or rent then end with purchase. The parties, which
 involve three persons, enter into contracts in order to complete the lease or buy back
transaction. The first contract, Ijarah, outlined the terms for renting over a fixed
period, and the second contract, Bai, which related to a sale or purchase once the term
of Ijarah was fulfilled. For instance, in the first agreement, Mr. Hamizan leases the
vehicle brand Mercedez from the owner or, in this case, the bank for a predetermined
sum of time. The second contract takes effect after the lease's expiration date and
enables Mr. Hamizan to buy the vehicle for a fixed sum.

2. Al-Ijarah Muntahia Bithamilik (AIMAT)

This al-ijarah is known as financial Ijarah. This is a contemporary Ijarah that
was developed in response to the advancement of Islamic banking and finance. It
represents a type of Ijarah in which ownership is given to the lessee following a set
period of time. Lease agreements (Ijarah) that result in the lessee gaining ownership
of the leased property. It might appear in one of the following ways, first, a contract
that, if the lessee chooses, gives him or her ownership of leased property in exchange
for payments paid in rent during the course of the lease. Legal title to leased property
immediately transfers to the lessee at the end of the lease term without further
agreement. Secondly, a contract that grants the lessee the option to purchase the
leased item outright at the conclusion of the lease term in exchange for a
predetermined payment, which could be a nominal sum. Lastly, a leasing agreement
that allows the lessee to choose between three choices at the end of the lease term:
buying the leased asset for a price defined by the rent the lessee has paid; renewing
the Ijarah for another term; or returning the leased asset to the lessor (owner). For
example, Mr. Aiman wants to buy a house from Mr. Durka and they make a transfer
owner of assets as Mr. Durka wants to let go his property to Mr. Aiman. Mr. Aiman
gets to pay the rental amount during the lease, and he legally gets the ownership at the
end of the lease term even without the agreement. This contract also allows Mr.
Aiman to choose three options at the end of lease term, either to buy the property at
price defined by the rent of Mr. Aiman has paid, or renew the Ijarah for new term, or
return the leased asset to Mr. Durka.

3. Al-Ijarah Wal-Iqtina
A bank or other financial institution is contacted by the lessee with a request to
lease a specific asset or piece of property. With this understanding in place, the lessor
 purchases the asset or specific piece of property in question and enters into a lease
agreement with the lessee that details the amount and frequency of the latter's rental
payments. Both the obligation to assume the risks connected with the ownership
rights and the right to ownership of the asset remain with the lessor. The day the
lessee receives the asset or the right to use the property described in the contract, he
makes the first rental payment. The Al-Ijarah Wal-Iqtina is not significantly different
from other Ijarah contracts in these ways.

4. Ijarah Mawsufah Bi Al-dhimmah

This Al-Ijarah contract is also known as Forward Ijarah. The future
availability of the usufruct of the leased asset will be based on particular guidelines. In this
aspect, the hypothetically leased asset or property is recorded as a liability on the lessor's
accounts. Operating and financial leases both fall under this category. Islamic banks do
employ forward Ijarah as a source of liquidity. Throughout other circumstances, pursuant to
the terms and conditions of the lease, the revenue obtained from lessees will be gathered and
utilised to develop the construction project or the production process. Between the signing of
the Ijarah contract and the advance delivery date, rental payments will be paid in advance.
After this time, if the lessor fails to produce the underlying asset on the agreed-upon delivery
date, the lessor will be responsible for paying the lessee back all or part of the advance rental.
Conditions of Al-Ijarah Contract
Islamic scholars across the globe have endorsed the conditions for an Ijarah contract
to be valid because they are based on the basics of Shariah law. An examination of the
prerequisites for an Ijarah contract's legality confirms that the ease, openness, and integrity of
this type of Islamic financial contract are what make it so well-liked and common. The
following list of conditions for an Ijarah contract's legality will clarify some of the benefits of
this type of Islamic financial arrangement based on the pillars stated above.

The conditions of Al-Ijarah contract based on the pillars above are:

1. Ownership: The asset ought to have some practical value. This means that the lessor
must transfer the asset to the lessee in a condition that will allow it to be used to fulfil
the objectives set forth in the lease.
2. Possession: Before entering into an Ijarah contract, the lessor must possess the asset in
its whole and have sole ownership rights thereto.
3. Usufruct: Only after fully acquiring the asset or the right to use it, would the lessee
make the first payment of rent. Before making the initial lease payment, the lessee
must also be assured that perhaps the item is in a state that lends itself to usage.
4. Benefit: It is adequate for the lessor and lessee to enter into an agreement whereby the
lessee is responsible for the maintenance costs associated with owning the asset. The
lessor is also liable for reimbursement if the asset covered by the contract has been
damaged as a result of the lessee's negligence.
5. Duration: At the beginning of the contract, both parties must agree on a term or
duration for the Ijarah agreement.
6. Termination: The subject may not be used by the lessee in any way that conflicts with
the terms of the contract. In particular, neither the lessee may cause any harm to the
object of the contract.
7. Risk: The lessee is responsible for any loss, damage, or impairment of the leased asset
unless he can demonstrate that none of these events were caused by ta'addi
(misconduct), taqsir (negligence), or mukhalafah al-shurut (breach of stipulated
terms) on his side. The lessee is liable for repairing the asset if it can be demonstrated
that the loss, damage, or impairment was caused by negligence, misconduct, or a
violation of the agreed-upon terms by the lessee. The lessee is responsible for
covering all charges and expenditures associated with this restoration. The lessee will
still be responsible for paying rent during the restoration.
 8. Two parties are present: The contracting party requirements must be met by both the
lessor and the lessee. Be of sound mind and be of legal age of majority are two
requirements.

It is important to note in this context that the lessee must only utilise the asset in
accordance with the terms of the Ijarah contract.
Introduction to Ijarah (Lease) Contracts. (2020, April 18). Blossomfinance.com.
https://blossomfinance.com/posts/introduction-to-ijarah-lease-contracts

Conditions for Ijara Contract to be Valid. (n.d.-b). Ijara Community Development

Corp. Retrieved January 3, 2023, from https://ijaracdc.com/conditions-for-ijara-

contract-to-be-valid/

Team, T. (2021, October 29). Ijarah Contract: An Overview of Islamic Lease.

TheAccSense. https://www.theaccsense.com/finance/islamic-finance/ijarah-contract-

an-overview-of-islamic-lease/

https://fincyclopedia.net/islamic-finance/tutorials/types-of-ijarah
https://islamicmarkets.com/dictionary/i/ijarah-muntahia-bitamlik
https://ijaracdc.com/what-is-ijara-wa-iqtina/
https://ijaracdc.com/conditions-for-ijara-contract-to-be-valid/