In the name of God the compassionate the merciful
Ijarah is a sale of a defined Manfa’a (usufruct) of any asset for a defined period in exchange for definite rent. Consumable items that get used up, cannot be an Ijarah object of lease.
Anything which cannot be used without being consumed cannot be leased out. For example, money, wheat, fuel, water, and their like can be bought and used but not leased against rentals.
This is because the lessor has to bear the risk related to the ownership of the asset, and this is possible only if the leased asset remains intact and the lessor gets a reward in the form of rental against taking a risk.
Legally, the lease contract is not a sale of the object, but rather a sale of the usufruct (the right to use the object) for a specified period of time.
The legal evidence for the permissibility of the sale of usufruct is evidenced by the following two verses of the Quran; 65:6” but if you are in discord, then there may breastfeed for him (i.e., the Father) another woman”. Also, Quran 28:26-27). “One of the women said, “O my father, hire him. Indeed, the best one you can hire is strong and trustworthy.”
Some rules for valid (shariah compliant) ijarah
Transferring of usufruct not ownership to another person for an agreed price, at an agreed consideration. The subject of a lease must be valuable, identified and quantified. Consumable items that get used up, cannot be leased out.
Anything which cannot be used without being consumed cannot be leased out; e.g., money, wheat etc. All Liabilities of ownership are borne by the lessor. The Corpus of the leased property remains in the ownership of the lessor.
The period of a lease must be determined in clear terms at the time of contract. The lessee is seen as Ameen (trustee) so therefore he/she is liable to compensate the lessor for every harm to the leased asset caused by any misuse or negligence.
The leased asset shall remain at the risk of the lessor throughout the lease period. Lease of jointly owned property Is permitted and rentals shall be distributed between all the joint owners according to the proportion of their respective shares in the property.
Obligations of the lessor; As the lessor is the owner of the asset, he is liable to pay all the expenses incurred in the process of its purchase and its import to the country of the lessee. For example, expenses of freight and customs duty etc. The lessee will also be responsible for any loss caused to the asset by his misuse, negligence or breach of contract terms and conditions. He can also be made liable for any normally occurring wear and tear.
Some differences between Ijarah (Islamic lease) and conventional leasing
- With conventional leasing, the leased asset is not owned by the leasing bank, whilst in Ijarah the leased asset is owned by the leasing bank.
- In conventional leasing the bank cannot be held liable for any losses that might be incurred on the asset, with Ijarah however, the bank bears the risk of losses if it is not caused by the negligence of the lessee.
- With a conventional lease, rent is charged and billed prior to delivery of the leased asset, but with Ijarah, no rent (Ujrah) is charged and billed prior to delivery of the leased asset.
- With conventional leasing the agreement gives the bank a unilateral right to terminate the contract at its own discretion. Ijarah, is aqd laazim (a binding contract) and no party has the right to terminate it without mutual consent unless there is a breach by either of the party.
- With conventional leasing, a penalty on late payment is charged whilst, with Ijarah, a penalty on late payment is considered haram (impermissible) and hence cannot be charged.
The distribution of justice, equity, equality, transparency and integrity are conspicuous in all Islamic finance transactional contracts. These invaluable attributes call people to what is called by Islamic jurists the Falah (success in this life and the hereafter).
And Allah knows best!
YAHAYA ILIASU MUSTAPHA
The writer is an Islamic Banking and Finance patron and advocate in Ghana.
Email: yahaya0246873726@gmail.com
Facebook account: facebook.om/Yahaya.iliasu.94
0506218343 / 0246873726