Islamic Finance

Studies on Ijarah

About Ijarah

Ijarah is an Arabic term in Islamic Economics that generally referring to some form of renting or hiring of such service or  a person.  Ijarah can be classified as two main types namely Ijarah  ‘ala al-ashkhas and Ijarah al-a’yan.  These types of ijarah basically must be applied in different form of renting or hiring. The first type of Ijarah is commonly applied to human hiring but the second one is commonly applied to property renting or leasing. Between of two types of Ijarah have a similarity about the term for the payment involved in the contract. The payment or leasing fee  involved in this transaction is called ujrah.

Literally, Ijarah ‘ala al-Ashkhas can be defined as employing or hiring somebody. In this type of term, we can classifying two side of person or institution. The first side is the person who hire other that called musta’jir and the other side is the person being hired or ajir. Musta’jir have to paid to the ajir as a compensation for the received services from ajir. Like mentioned above, the compensation or money that involved in the contract between musta’jir and ajir is called as an ujrah.

Next, the Ijarah al-a’yan refers to the leasing of properties and assets. In this case, the object of contract is assets or properties that can be used by lessee. The lessee in this transaction is also called as musta’jir like the person who hiring in Ijarah ‘ala al-ashkhas contract. While the lessor as the institution or person who provide contract objects  in this type of Ijarah called as mu’jir. The true owner of the contract objects is the lessor, but in many cases, the lessor also proffers the ownership transfer of the contract objects to the lessee at the end of lease time, certainly, accompanied by the supplemental agreement.

Evolutionary, we also know other type of ijarah, which known as Ijarah mawsufah fi zhimmah. This contract, rarely applied in financial institution, because of some dissent of scholars. This contract contain some chance that may lead to ruse. The debatable point of this contract is about the lease fee payment. This contract have a possibility of payment of lease fee before the lease objects received or used by the lessee. Whereas, according to some scholars, payment for not received yet of a lease object is forbidden, because of this contract will encourage the lessor to do some ruse or knavery. But other scholars also argued that if the lease fee has been paid before lessee received the lease object, at the agreed delivery time the lessor must provide the lease object such as the specification stated in the agreement, it means that if the lessor can fulfilled the lease objects at delivery time, the lessee have right to cancel the agreement followed by the obligation of the lessor to pay back the paid lease fee. To avert some chance of fraud in this contract, some scholars presuppose an unequivocal and short period time between the settlement of lease fee and the delivery time.

Ijarah also applied in form of Ijarah Wal-Iqtina or Ijarah Muntahia bi Tamleek or Ijarah thumma al bay’. Ijarah Wal-Iqtina is one type of contracts in Islamic finance. Under this contract, a financial institution or bank as lessor, theoretically, provide assets that will serve as the object of the contract, either in the form of equipment, building, or other assets for the lessee or customer. The lessor and lessee agreed rental fee outright the rental period in contract. Ownership of the contract object can be transferred to the lessee at the end of the contract period, although this agreement does not have to be an integral part of the main contract. With this kind of contract, it is possible for the lessor to cover the cost of purchase along with its profits through installments over the period of the contract, so that the ownership can be transferred to the lessee at last. There are other options that can be take at the end of this contract. The lessee can re-negotiate the lease fee for the next new periods that also followed by some new agreement, like agreement to hire and purchase or sale option at the end of contract.

OK, this is the maximal that can I do at this time, Insya-Allah, I will extend this article next time. So, some comments to this articles will be accepted as a correction.


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