Ijarah

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INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES

ACCOUNTING FOR ISLAMIC BANKS ACC 4561 SECTION 2

IJARAH
21ST DECEMBER 2012

PREPARED FOR: MDM. ROS ANIZA MOHD. SHARIFF

PREPARED BY: GROUP 4 MOHAMAD SHAFIQ BIN MUSA NUR AIN BT MAZUPI NADHIRAH AZIDY NURUL NAJAT BT HALIM MUHAMMAD AYMAN BIN A YAZID (0824825) (0812550) (0933644) (0831108) (1011065)

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ABSTRACT This paper is on the study of Ijarah Financing in Malaysia and Bahrain with the related issues faced by Islamic Banks in Malaysia regarding Ijarah. All the data were extracted from the annual reports 2011 for each respective bank in Malaysia and Bahrain and the data were analyzed to measure the contribution of Ijarah towards the banking industry. Besides, the assignment also aims to find out more on issues occurring in Islamic Bank in Malaysia based on the interview conducted with a few chosen banks. The findings shows that the variations of Ijarah offered are different between Islamic Banks in Malaysia and Bahrain.

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TABLE OF CONTENT

Descriptions A. Introduction B. Ijarah (Islamic Leasing) C. Types Of Ijarah D. A Comparative Study Of AAOIFI (FAS 8) AND MASB 10

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E. Findings And Discussion F. Issues On Ijarah Financing G. Recommendation H. Limitations I. Conclusion J. References

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A. INTRODUCTION Unlike conventional economics which focuses on profit maximization, the Islamic economic system aims at the “study of human falah achieved by organising the resources of earth on the basis of cooperation and participation (Akram Khan, p.55).” In other words, the Islamic economic system aims at attaining Allah s.w.t’s pleasure, while pursuing economic activities within the boundaries of the Islamic shariah. The Islamic shariah puts a heavy importance on the well being of the community and social justice. Thus, this also means the prohibition of interest. The prohibition of interest is one of the main factors that put Islamic economics in distance with the conventional economics. Because of this difference in nature, Islamic Financial Institutions (IFIs) have different types of contracts as practiced by conventional financial institutions. One of the types of contracts entered by IFIs is the Ijarah contract. Ijarah contracts are also known as Islamic leasing. Basically, this study is done in order to understand more the nature of leasing according to Islamic principles, and at the same time, the differences of ijarah with conventional leasing. In addition, this study also aims to identify the types of ijarah practiced by IFIs in Malaysia and also to see how Malaysian IFIs disclosed their ijarah financing in comparison to their counterparts in Bahrain IFIs. This is because as one ummah, it is important to have a standardized standard that is Shariah compliant and could be compared with all the other IFIs. Analysis was done based on the financial reports of the IFIs to observe the differences in the disclosures. The result obtained from the observations then will be used to suggest some improvements that could be done to improve the IFIs.

B. IJARAH (ISLAMIC LEASING) Ijarah contract could be defined as a contract that transfers the usufruct of an item to another person for a specified period in exchange for a specified consideration. It also could be referred to as the renting and leasing of assets. The main difference between ijarah contract and sales contract is that ijarah contract focuses on the selling and purchasing of the usufructs of goods/properties, but the physical goods are still subjected to the ownership of the lessor.

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However, in this era of globalisation, there are many more complex transactions involving ijarah than the basic concept as mentioned above (Mohd Shariff and Abdul Rahman, n.d.). Theoretically, only operating ijarah is only allowed in Islam. But nowadays, in order to cater the demand of Muslims all around the world, many other types of...
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