Ijara - Introduction

Ijara - Introduction
"Ijarah" is a term of Islamic fiqh. Lexically, it means 'to give something on rent'. In
the Islamic jurisprudence, the term 'Ijarah' is used for two different situations. In the
first place, it means 'to employ the services of a person on wages given to him as a
consideration for his hired services." The employer is called 'mustajir' while the
employee is called 'ajir'.
Therefore, if A has employed B in his office as a manager or as a clerk on a monthly
salary, A is mustajir, and B is an ajir. Similarly, if A has hired the services of a porter
to carry his baggage to the airport, A is a mustajir while the porter is an ajir, and in
both cases the transaction between the parties is termed as Ijarah. This type of Ijarah
includes every transaction where the services of a person are hired by someone else.
He may be a doctor, a lawyer, a teacher, a laborer or any other person who can render
some valuable services. Each one of them may be called an 'ajir' according to the
terminology of Islamic law, and the person who hires their services is called a
'mustajir', while the wages paid to the ajir are called their 'ujrah'. Labor
The second type of Ijarah relates to the usufructs of assets and properties, and not to
the services of human beings. 'Ijarah' in this sense means 'to transfer the usufruct of a
particular property to another person in exchange for a rent claimed from him.' In this
case, the term 'Ijarah' is analogous to the English term 'leasing'. Here the lessor is
called 'Mujir', the lessee is called 'mustajir' and the rent payable to the lessor is
called 'ujrah'.
Both these kinds of 'Ijarah' are thoroughly discussed in the literature of Islamic
jurisprudence and each one of them has its own set of rules. But for the purpose of the
present book, the second type of Ijarah is more relevant, because it is generally used
as a form of investment, and as a mode of financing also.
The rules of Ijarah, in the sense of leasing, is very much analogous to the rules of sale,
because in both cases something is transferred to another person for a valuable
consideration. The only difference between Ijarah and sale is that in the latter case the
corpus of the property is transferred to the purchaser, while in the case of Ijarah, the
corpus of the property remains in the ownership of the transferor, but only its usufruct
i.e. the right to use it, is transferred to the lessee.
Therefore, it can easily be seen that 'Ijarah' is not a mode of financing in its origin. It
is a normal business activity like sale. However, due to certain reasons, and in
particular, due to some tax concessions it may carry, this transaction is being used in
the Western countries for the purpose of financing also. Instead of giving a simple
interest - bearing loan, some financial institutions started leasing some equipments to
their customers. While fixing the rent of these equipment, they calculate the total cost
they have incurred in the purchase of these assets and add the stipulated interest they
could have claimed on such an amount during the lease period. The aggregate amount
so calculated is divided on the total months of the lease period, and the monthly rent is
fixed on that basis.
The question whether or not the transaction of leasing can be used as a mode of
financing in Shariah depends on the terms and conditions of the contract. As
mentioned earlier, leasing is a normal business transaction and not a mode of
financing. Therefore, the lease transaction is always governed by the rules of Shariah
prescribed for Ijarah. Let us, therefore, discuss the basic rules governing the lease
transactions, as enumerated in the Islamic Fiqh. After the study of these rules, we will
be able to understand under what conditions the Ijarah may be used for the purpose of
financing.
Although the principles of Ijarah are so numerous that a separate volume is required
for their full discussion, we will attempt in this chapter to summarize those basic
principles only which are necessary for the proper understanding of the nature of the
transaction and are generally needed in the context of modern economic practice.
These principles are recorded here in the form of brief notes, so that the readers may
use them for quick reference

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