Ijarah

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BF 1203
TRANSACTION IN ISLAMIC BANKING & FINANCE
FACULTY OF BUSINESS AND MANAGEMENT OF SCIENCES

TOPIC:
IJARAH
Done by:
Muhammad Hibatul Hakimi b Haji Suhaili (10B0911)

Contents
Introduction1
Basis of Ijarah2
Essential elements of ijarah contract2
Modus Operandi3
3 Selected Banks4
Conclusion6
Bibliography6

Introduction
An Islamic alternative to conventional leasing is ijarah. Ijarah is a derivative of the Arabic words ‘ajr’ and ujrah which means consideration, return, wages, or rent. Generally, Ijarah means to give something on a rental basis or wages.According to muslim scholars such as hanafi, maliki and shafiee. Definitions of ijarah according to Hanafi, it is a contract which enables possession of a particular intended usufruct of the leased asset for a consideration. Definitions of ijarah according to shafiee, it is a contract which relates to permissible usufruct liable to utilization and accessibility for a particular recompense Definitions of ijarah according to Hambali, it is a contract for a particular permissible usufruct which is taken gradually for a particular period and a particular consideration. The practice of Ijarah takes place in a contract between two parties which is the lessor and lessee where the lessee gets the benefits of a specific service or specific asset owned by the lessor on specified consideration or rent. In al-ijarah services, the lessee is called musta’jir, the lessor is called ‘ajir and the wage or salaries is called ‘ujrah. Under Islamic jurisprudence, in terms of definition ijarah has two types which is ijarah ‘amal and ijarah ‘ain which will be explained in two different situations. Ijarah ‘amal : it means to employ the services of a person and wages paid as a consideration for the services rendered. For example, X Islamic bank hires Dr Z as a manager on a monthly salary of $7000. In this case, X Islamic bank is mustajir, Dr Z is ajir and $7000 is ujrah. This type of ijarah is the services of a person hired by someone else and the compensation for the effort and skill. Ijarah ‘ain: This type relates to the hiring of any assets or properties in order to get its benefit without the transfer of ownership and in English it is known as usufruct. For example, A Islamic bank agreed to lease a house to Mr M, the benefit that Mr M gets from the house is known as usufruct. Under this contract, the title of asset remains with the lessor and there is no option for the lessee to buy the asset during or upon expiry of the contract. Thus, ijarah ‘ain is the true leasing and does not involve sales of tangible object but rather sales of intangibles known as usufruct or manfaah. In terms of usage/practice ijarah has three types, which is as follows: Ijarah Thumma al-Bai’ (hire purchase) – car financing; “buying back” at an agreed price Ijarah Wal Iqtina – rent of assets e.g. equipments, buildings, from Islamic Banks and involves change of ownership

Ijarah Muntahiyya bittamlik-
These kinds of Ijarah are thoroughly discussed in Islamic jurisprudence and each one of them has its set of rules. According to Maulana Taqi Usmani, Ijarah ‘Ain is more relevant because it is generally used as a form of investment, and also as a mode of financing. Basis of Ijarah

Ijarah contract is permissible in its principle; the evidence is drawn from two ultimate sources; the Quran and the Prophet’s Sunna.

قَالَتْ إِحْدَاهُمَا يَا أَبَتِ اسْتَأْجِرْهُ إِنَّ خَيْرَ مَنِ اسْتَأْجَرْتَ الْقَوِيُّ الْأَمِينُ -٢٦ ‘’ Said one of the (damsels): "O my (dear) father! engage him on wages: truly the best of men for thee to employ is the (man) who is strong and trusty"(Al-Qasas:26)

فَانطَلَقَا حَتَّى إِذَا أَتَيَا أَهْلَ قَرْيَةٍ اسْتَطْعَمَا أَهْلَهَا فَأَبَوْا أَن يُضَيِّفُوهُمَا فَوَجَدَا فِيهَا جِدَاراً يُرِيدُ أَنْ يَنقَضَّ فَأَقَامَهُ قَالَ لَوْ شِئْتَ لَاتَّخَذْتَ عَلَيْهِ أَجْراً -٧٧- ‘‘Then they proceeded: until, when they came to the inhabitants of a town, they asked...
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