Forward Ijarah Analysis

In Malaysia, Forward Ijarah is practiced by a few Islamic Banks only as there are at least two financial institutions that currently offer forward Ijarah, either as a standalone product on it is own or as a hybrid along with other products.
1. Forward Ijarah for House Financing – stand alone basis
It is a product offered for purposes of home financing where the property financed is not completed yet or still under construction. As the usufruct is not available due to non-completion of property, the bank uses the concept of Forward to enable collection of payment for progressive releases made pending completion of the property.

2. Forward Ijarah for House Financing (Hybrid – combined with Musharakah Mutanaqisah)
Forward Ijarah Portion Musharakah Mutanaqisah Portion
Bank and Customer enters into a Musharakah, say 90 % contribution by Bank and 10% contribution by Customer. Customer also starts gradual payment to buy over Bank’s portion of the Musharakah. The Bank’s portion diminishes gradually as the payment is gradual, hence the contract is called Musharakah Mutanaqisah from the Bank’s perspective.
Property is not completed at the point Musharakah is contracted, and takes for example, 2 years to be completed
Persuant to the paragraph 20.1(a), in the event that the delivered asset does not meet the specification, the lessee shall have the option to terminate or continue the contract. Besides, Persuant to the paragraph 20.5, in the event the contracting parties agree to enter into any other ijarah contract subsequent to ijarah mawsufah fizimmah, the commencement of the subsequent ijarah contract shall take effect after the specified duration to satisfy the delivery of usufruct to the