Application of Akad Ijarah Islamic Law in the Al-Qur'An

Journal of Islamic Finance

The operating ijarah and ijarah financing are currently generating interest among the Islamic banks, investors, customers and even policy makers due to their less risk overloads and better profits to the public. This paper attempts to highlight the benefits of applying the Islamic legal objectives (Maqasid Al-Shari'ah) in ijarah contract, and how a strict compliance to the latter can help manage Shari'ah, business and distribution of wealth in the society. The paper discusses the impact of Muslim scholars in applying ijtihad and analogical deduction to fashion out the appropriate ruling in respect of the issues, by putting into consideration what would be the best interest of Islam and Muslim community as a whole. It also discusses the consent of the contracting parties as one of the conditions validating the ijarah contract, and as a supplement to the objective of avoiding injustice and embezzlement of another person's wealth. The paper explains how the profit made and the risks incurred, if any, are shared between the parties involved in ijarah transaction which are proportionally shared according to what has been earlier agreed upon.

Islamic Economic Studies, 2016

Fiqh, indicating Islamic law and the means to produce it, covers all aspects of human dealings, including Islamic financial law and its Shariah nominated contracts, which represent the bases for all Islamic banking and finance transactions. These contracts are either readily found in the classic books of Islamic law or modified versions adopted to suit the modern transactions of Islamic finance. In some cases they are a combination of more than one contract designed to serve a particular financing purpose, like the contract of Ijarah Muntahia Bittamlik where the transaction starts with lease and ends with sale. This paper comes to discuss the most important Ijtihad instruments that can be used by the Faqih to evaluate and endorse products in Islamic finance. It then elaborates on the instruments that are in use in the modern Islamic finance and which reflect a departure from Shariah rules and tools for Ijtihad. The objective of this paper is to shed light on the cotemporary Ijtihad in Fiqh of Finance in light of the guidelines provided by the Shariah in an attempt to draw the outlines of what constitutes a proper use of proper Ijtihad instruments in Islamic finance.

AL-IHKAM: Jurnal Hukum & Pranata Sosial, 2019

Ijârah begins from the concept of classical fiqh as a transaction that sustains the development of Islamic banking. The wide range of banking products produced from the concept of ijarah is the basis for developing the concept of jurisprudence from classical fiqh contact to banking products in the form of financing. These developments can be seen from a large number of banking products that use ijârah contracts, especially those related to services. This development lies in the merger of ijârah contracts with several other contracts such as wakâlah. Another development that exists in the path to ijarah financing is seen from the foundation. In classical fiqh concept, ijârah is a product of fiqh ijtihâd which is ẓanni or not binding. Every Muslim may practice the concept of jurisprudence from many scholars as ijtihâd. However, in the financing of the surcharge, it is a combination of several contracts and is based on the DSN-MUI fatwa which is more binding for Islamic financial institutions on the recommendation of the Islamic banking law.

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The absence of bonds in the capital market and the capability of Islamic contracts in designing of new financial instruments have come to different Islamic financial instruments as sukuk be proposed by the Islamic financial experts. However, although they all lack of those required jurisprudential and economic criteria, few of them have a high operational and economic feasibility in compliance with Islamic jurisprudential rules.

Journal of Islamic Business and Management (JIBM), 2019

The Islamic banking industry facilitates both consumer and corporate clients by providing needed capital through different modes of financing. The prerequisites of financing the corporate clients are generally different from that of the individual customers. This study discusses a detailed narrative of how a corporate customer, Sufi oil, availed financing from Bank Islami through ijārah mode of financing in a Sharī'ah compliant way. It discusses step by step procedure of dealing with corporate client starting from the first stage when a representative of the firm visited the Bank Islami and discussed the firm needs and the possible procedure and mode of financing. The study provide a comprehensive insight in the internal procedures involved in evaluating each and every client. Different branches and their respective role and responsibilities at the branch level and their interaction with the Head Office have been highlighted. The study has also briefly discussed various risks that may encounter the transaction and the manner in which the perceived risks have been mitigated. The focus of the study is to differentiate the corporate ijārah from the consumer ijārah in terms of both documentation and procedure. The repayment schedule for the case is also described in detail along with the rent that the Bank Islami would be getting by leasing any vehicle to the corporate entity.

UCP Management Review

Islamic banking is the system where all rules and regulations of the banking system are governed by Shariah rules, providing collective impartiality and fairness, while gratifying the financial requirements of the community and maintaining high principles of moral values, simplicity, and wisdom of accountability. As we can see in the past years, there is an escalation in competition and emphasis on ethics, all across the globe, therefore, Islamic products are attracting not only Muslims but non-Muslims as well. Moreover, the shariah rules provide collective impartiality and fairness, while gratifying the financial requirements of the community. The main objective of this study is to review the Car Ijarah, in the light of Shariah principles and its practical implications by the Islamic banks in Pakistan. In this study, the survey research method is used for collecting the data. In this regard, Islamic banking personnel at a managerial level were asked to fill the Questionnaires. A detailed analysis of the lease documents of each bank was also done. This study highlights that most of the conditions in Ijarah agreements in Pakistani Islamic banks are according to Shariah laws such as lease rentals starts at the delivery of the vehicle, customers are liable to pay any loss due to their negligence and wear and tear. Whereas, bank is liable to pay any loss due to natural disaster. Also, banks have opted to charge variable lease rentals in long-term lease as well as transfer of ownership, after the completion of lease term, is in the hands of bank etc. At the same time this study evidently identifies the deficiencies in existing Ijarah products where they are simply not following Shariah guidelines for example expenses related to purchase are borne by lessee. Secondly, most of the banks have no right to cancel the lease agreement at any time if the lessee has violated lease agreement. Insurance expense (Takaful) is also born by lessee.

Forward ijÉrah is a newly introduced financing tool used for different financial services by individuals and Islamic financial institutions (IFIs). IFIs currently provide a financing product for home under construction based on the mushÉrakah mutanÉqiÎah partnership (MMP) whereby forward ijÉrah is applied as a sub-contract. There is a consensus on legality of forward ijÉrah. The parameters of forward ijÉrah are constituted from rules of both ijÉrah and salam. Forward ijÉrah is allowed to be used along with other valid contracts in hybrid mode as long as it fulfills the criteria put forward by scholars. The book also shows that although usufruct is not a valuable asset in its originality according to ×anafÊ School, usufruct of ijÉrah is excluded from being a valueless asset on the basis of exception regardless of whether it is ijÉrah of a particular object or usufruct in liability. In addition, if the rental is fixed it comes out of being debt in liability, albeit it is not handed over. Therefore, immediate payment is not obligatory in forward ijÉrah. The issue that contradicts SharÊÑah principle is that the bank does not bear any risk; rather, it considers the rental paid by customer for forward ijÉrah during the construction period as the compensation for the failure of istiÎnÉÑ, and the customer also cannot charge the developer for abandoned house. The possible solution for the issue is that the bank should share the risk according to its portion in partnership as well as the customer can refer to the developer to charge the compensation for his actual failure in istiÎnÉÑ. Therefore, the provision(s) should be added in the law of Islamic banking and finance that binds the developer to compensate the customer for his actual default.

International Journal of Academic Research in Business and Social Sciences

This article aims to examine Islamic jurists' views on the issue of responsibility towards ijarah (lease) assets in Al-Ijarah Thumma Al-Bayᶜ (AITAB) financing from the perspective of fiqh. AITAB is one of the hybrid products that combine ijarah (lease) and bay' (sale) contracts. According to the Shariah, during the financing period, the AITAB product must comply with the ijarah ruling. However, in the current practice, the application of this product is still subject to legal provisions that may not be in line with the rules of ijarah. This scenario can be observed in the issue of asset maintenance responsibility and the issue of responsibility to bear the cost of takaful. In terms of the issue of asset maintenance, all responsibilities are transferred to the lessee, whereas according to fiqh, the responsibility only needs to be borne by the lessee if the damage to the asset is due to his negligence or to its use out of custom. Similarly, in the issue of responsibility to bear the cost of takaful, the lessee also has to bear the cost, while according to the Shariah, the lessor i.e. the bank, that has to bear the cost. Accordingly, this paper aims to identify the responsibility towards assets in AITAB financing from the fiqhi perspective. The paper also examines the compliance of the current implementation of AITAB financing with the Sharia. This study is qualitative using a content analysis approach in examining fiqhi views. The results show some issues related to asset responsibility in AITAB financing have to be analysed further from the fiqh perspective.

Ilahiyat Studies, 2012

In recent decades, crucial changes in the legal reasoning of Islamic sharīʿa resulting from the differing influences of changing social needs, economic factors, and political-legal circumstances have been observed. This paper argues that these changes are particularly visible in the manner in which the major sources of uṣūl al-fiqh are utilized, the meanings attached to them and the frequency with which they are utilized in solving distinctly modern problems in the Muslim world. The paper makes this argument in terms of the modern theoretical approaches in Islamic finance by focusing on how a number of classical legal institutions, such as the ḍarūra, maṣlaḥa, and other foundations of ijtihād, have been re-interpreted in a manner that reflects changing socio-economic conditions in the age of globalization. The paper also demonstrates how other classical institutions, such as madhhab and the use of classical sources of uṣūl al-fiqh, have been radically changed by the (new) theorists of Islamic economics because of changing social and legal circumstances. Thus, for instance, the paper dis-cusses how the ijtihād in Islamic finance has been both greatly intensified and partly transformed into a collective enterprise rather than the individual act of a scholar because of increasing complexity in economics and the accompanying specialization and professionalization of ʿulamāʾ. The paper ends with a discussion of the possible implications of these changes for the contemporary practice of Islamic finance in the West, as well as in the Muslim world.

Humanomics, 2010

PurposeThe purpose of this paper is to discuss Islamic laws which are relevant to finance. More specifically, it covers the types of contracts as foundation for the distinctive Islamic financial products. The current institutional framework of financial institutions seems to be incompatible with the nature of these Islamic contracts.Design/methodology/approachThis is a conceptual paper describing the link between finance and economic growth in the present of Islamic contracts, which have various types from contract of partnership, buy‐sale contract, to contract of usufructs. The nature of Islamic contract is to avoid riba (i.e. interest system), because it is unjust and prohibited, meanwhile under conventional system they rely very much on the interest system.FindingsThe conclusion of the paper is that the distinctive character of Islamic contracts applied by Islamic banking and finance relies mostly on the profit and loss sharing mechanism which contains the cooperative spirit, in ...