Understanding Islamic Finance - Doha Academy of Tertiary Studies

11Ijarah – Leasing11.1 INTRODUCTIONAccording to contemporary jurists and experts on Islamic finance, Ijarah has great potentialas an alternative to interest in respect of evolving a Sharī´ah-compliant financial system.Ijarah is permissible according to Ijma‘a of jurists and the Sharī´ah scholars. As viewed byImam Shafi‘i and many other jurists, two verses of the Holy Qur’ān, because of their generalnature, refer to the legality of Ijarah. Literally, Ijarah is derived from al-’Ajr and meanscompensation, substitute, consideration, return or counter value (al‘Iwad). As a contract,it refers to hiring or renting any asset/commodity to benefit from its usufruct. It alsoencompasses the hiring of labour and any contract of work for anyone against a return(wage). Therefore, broadly the rules and principles of labour, renting, Ju‘alah and all othercontracts for usufruct of goods and services are covered by the term Ijarah. Other terms,used less frequently, for such contracts are Kirā ’a and Istijār.In Islamic law, Ijarah is a contract of a known and proposed usufruct of specified assetsfor a specified time period against a specified and lawful return or consideration for theservice or return for the benefit proposed to be taken, or for the effort or work proposedto be expended. 1 In other words, it is the transfer of usufruct for a consideration, which isrent in the case of hiring assets or things and wages in the case of hiring people. Accordingto the jurists, Ijarah is the sale of usufruct (and not of ‘Ain or corporeal goods) of anycommodity in exchange of Ujrah, wages or rent, and covers houses, shops, riding/workanimals, jewellery, clothes, etc. 2The permissibility of Ijarah is given in the Holy Qur’ān, Sunnah of the holy Prophet(pbuh) and consensus (Ijma‘a) of the Islamic jurists. 3 Letting goods for use is a generalkind of business activity legalized by the Sharī´ah as it is a convenient means for peopleto acquire the right to use any asset that they do not own, as all people might not be ableto own the tangible assets for use. 4 This permissibility is subject to a number of conditionsdescribed in books of Hadith and Islamic jurisprudence.In this chapter we shall discuss in detail the rules relating to Ijarah of usufruct of goodsor leasing as a form of investment and a mode of financing that normally takes the formof Ijarah Muntahia-bi-Tamleek. Ijarah of work or services will be discussed briefly wheredeemed necessary.1 Lane, 1956; Also see Al-Atasi, 1403 AH, Majallah, Articles 405, 420, 421; Zuhayli, 2003, 1, pp. 386, 387; Qastalani, 1304 H,IV, p. 124.2 Al-Kasani, 1993, 4, pp. 452–457.3 Al-Kasani, 1993, 4, pp. 552–556; Zuhayli, 2003, 1, pp. 385–388.4 AAOIFI, 2004–5a, Standard on Ijarah, p. 151.