Definition of ijarah

Ijarah is an alternative to conventional lease contract. Islam has allowed ijarah contract to fulfill the different needs of the people. Sometimes, people want to use and take benefits from an asset, but they aren’t be able to own the asset or might not be interested to own it due to various reasons. The contract of ijarah give them a luxury to get the right of use without taking the ownership of an asset. Literally, ijarah means compensation, consideration and return. Technically, it refers to a contract of hiring or renting an asset / commodity to get benefits from its usufruct. In other words, ijarah is a sale of usufruct or service in return for compensation. The subject matter of the ijarah is the usufruct of an asset or the service that is rendered by an employee. Although, ijarah is a sale of usufruct or service, but it is different from normal sale. Because, in ijarah (lease) contract, only the possession and usufruct of an asset if transferred to the lessee, while the ownership remains with the lessor. Unlike the sale contract, whereas both ownership and usufruct are transferred from the seller to the buyer.

Types of ijarah

In general, ijarah is divided into two types

Ijarah al-amal (hiring a person)

It’s referred to a contract in which someone hire or employ a person on wages. The hired person provides his services in return for compensation. In this context, the employer is called “al-mustajir” and the employee is called “ajeer”. The compensation is given to the employee is called “ujrah”. This type of ijarah is very common and has different forms. It includes every contract in which someone is hired to provide his services and skills and get paid in return for his services and expertise. He may be a doctor, a lawyer, a teacher or any other person who can render some valuable services.

Ijarah al-ayn (lease of an asset)

It’s referred to a contract in which one person leases his asset to another person in return for rent. For instance, someone rents his car to another person and gets rent in exchange of the usufruct of the car. In this contract, the ownership of an asset remains with lessor. However, the asset is transferred to the lessee to get the benefits and usufruct of it. When the period of ijarah is completed, the asset is returned back to the lessor who is the owner.

The jurists and scholars have defined certain rules for both types of ijarah. However, the second type of ijarah is more relevant and applied. Because, it’s used as investment and mode of financing in prevalent Islamic financial institutions. In the next article, we’re going to explain the rules and principles of ijarah and how it’s applied as a mode of financing in prevalent Islamic financial system.