Islamic Finance Method Topics : Ijara, Musharaka, Murabaha, What is Riba?


In terms of Islamic Finance, there are specifics laws (Shariah) that must be followed. Knowing the specifics of each banking transaction is important and imperative to be right and just in terms of money as a Muslim.

Ijarah ultimately means wage, rent or lease. The concept involves the selling a product or service (or the use of something) for a fixed price. This can include rental properties, apartments, cars (in terms of a lease), homes, etc. A specific period of time is agreed upon and the price is fixed with no interest added. The aqd (contract) states the pre-determined lease period of time and the agreed upon rental price.
Ultimately, Ijarah is a contract that distributes funds in order to use an item. The finance company or lessor (mu’ajjir) leases or rents something to a tenant (musta-jir). The transfer of ownership never occurs with Ijarah. Included in the contract is a service fee or Ujrah that is agreed upon at the time of transfer. Ijarah can also include the hiring of people (Mu’jar).
In order for this Islamic Finance transaction to be Shariah-compliant, it must follow several specifics:
  1. The two individuals involved in Ijarah must be mature and sensible beings;
  2. The benefits of the product or service must be explained perfectly at time of aqd;
  3. The items that are rented or leases must be used and returned in an unblemished form;
  4. The contract occurs as the choice of a tenant, not an obligation;
  5. Price and product or service must be clearly stated and described in contract;
  6. The item that is leased or rented must be in good condition and/or valuable.
Many times Ijarah is used to rent a home or apartment to a tenant. In terms of Shariah law, the place must be returned to the lessor in an unblemished condition after a period of time. The agreed upon rental cost must be clear and shall never change during the contract time. The cost of maintenance cannot be added to a lease in terms of apartments or rental properties. The tenants (musta’jir) must return the property if they are unable to pay the rent or charges included in the agreement. If they are not using the item or place properly that is discussed in the contract, the item also can be retained by the mu’ajjir.