Upon completion of this chapter, you should be able to:
Define Ijara in comparison with a conventional lease.
Describe the types of Ijara offered by modern Islamic banks.
Explain the Shariah rules and general principles that guide Ijara contracts and
the documents related to Ijara.
Discuss the differences of Ijara from a conventional lease, a loan and diminish-
INTRODUCTION TO IJARA
The term Ijara is derived from the root word ‘ajr’, which means reward or wages for
work done or services rendered. In the financial world, Ijara is a bilateral contract
involving transfer of the use of an asset for an agreed period for a consideration. It
involves two parties: the lessor or Muajir, who is the owner of the asset and the lessee
or Mustajir, who uses the asset. The owner of the object temporarily transfers its usu-
fruct to the lessee for the agreed period and the lessee should be able to derive benefit
from it without consuming it. The ownership of the leased asset remains with the les-
sor, along with all risks pertaining to ownership. The physical possession of the asset is
held on trust by the lessee, who is not liable for any loss, destruction or reduction in
value of the asset, unless caused by misuse or intentional negligence by the lessee.
In Islamic jurisprudence, the term Ijara is used for two different situations. One, as
in the case of a conventional lease, is the transfer of the usage of an asset, while the
other is where a person is employed for some service in exchange for wages, like teach-
ers, lawyers, and doctors. According to Islamic scholars, the Ijara contract consists of
three main elements. Like all contracts Ijara also involves offer and acceptance – Ijab
and Qabul. There are the contracting parties, the lessor and lessee; the subject matter
of the contract, including the consideration or rent (called Ujrah) that the lessee pays
for the right to use and derive benefit from an object owned by the lessor. The asset is