IJARAH

Group 6 presentation
Islamic Law of contract
Kaddijatiou Bah 22124078
Maimuna Cham 22014329
 INTRODUCTION

Ijarah, also known as Islamic leasing ,is a concept and a mode of financing in
Islamic finance that is based on the principle of Islamic law .It is a form of contract
where the lessor transfers the right to use an asset to the lessee in exchange for
periodic rental payments .in this arrangement, the lessor retains ownership of the
asset while the lessee has the right to use it for an agreed upon period.
 DEFINITION
• Ijarah is an Islamic leasing contract where the lessor(owner) provides the
lessee(tenant) with the right to use an asset in exchange for rental payment
.
• Ijarah derives from Arabic, meaning “to give something on rent.” It is a
type of contract in Islamic Finance that requires the bank to buy an item
for a customer and then lease it back.
 FEATURES OF IJARAH
• The Lessor must own the Asset being Leased for the Entire Period of the
Lease.
• No Compound Interest may be Charged if the Leased Delays or Defualts
on Payment.
• Use of the Asset being leased must be Specified in the Contract.
 TYPES OF IJARAH
1. Ijarah al-Amal (Hiring/Employment)
Ijarah al-Amal refers to the type of contract when someone hires or employs a person or
service on wages. The hired person provides his services in return for compensation. The
employees may be doctors, lawyers, teachers, or any other person who can render valuable
services.
2. Ijarah al-Ayn (Leasing an Asset)
Ijarah al-Ayn is applied to the contract when the person leases his property to someone in
exchange for rent. For instance, someone rents his car to another person and gets rent in
exchange for the usufruct of the vehicle. In this contract, the ownership of the property
remains with the lease giver.
 Condition of Ijarah
1. Both parties – lessor and lessee must meet the contracting party conditions. The
conditions among others are be sound of mind and attained the age of maturity.
2. The existence of the object of the contract which can either be asset or equipment or
benefit or usage.
3. The lessor and lessee must agree and determine by the rent at the contract inception.
4. There must be a term or period of the Ijarah arrangement agreed by both parties at
the inception of the contract.
5. Offer and acceptance of Ijarah arrangement between the parties.
 APPILICATION OF IJARAH
• Ordinary ijarah: lease of plant and equipment, real estate, durable goods, etc.
• Ijarah sukuk: these are certificates of equal value issued by the owner of a leased
property/ asset with the aim of selling it and recovering its value so that the sukuk
holders become owners of the underlying property/ assets.
• Securitization: by definition, it is the process of dividing ownership of tangible
assets, usufructs or both into standard units, i.e., units of equal value, and then
issuing securities with face values equal to these units. As ijarah involves the
ownership of usufructs (manafe’e), it can be put into use in the business of issuing
certificates of ownership of usufructs of leased properties. This usually aims to lease
properties and receive rental from the revenue of subscription to the effect that the
usufruct of the properties is passed into the ownership of the sukuk (certificates)
holders.
 Advantages
• Low monthly payments
• Long-term flexibility
• Optimal tax benefits
• Hassle-free lease maintenance
• Versatility and adaptability to various asset types and financing needs
• Compliance with Sharia law
• Fixed monthly rentals that make it easier to plan finances
• No interest-related surprises or fluctuations that give customers stability and predictability in
their financial commitments
 Reference

What is Ijarah? Definition and 2 Types of Ijarah - Musaffa Academy

Ijarah Contract: An Overview of Islamic Lease | THEACCSENSE
Applications of Ijarah – Fincyclopedia