What Is Ijarah Contract? Definition, Pillars, Terms and Types

Ijarah contract is a rental activity with a predetermined fee.

The word Ijarah comes from the Arabic al-‘Ajr which means “consideration”, “compensation”, “reward”, or “substitution”. Ijarah contract is an activity in which a financial institution rents out something by charging a predetermined rental fee.

In simple terms, the Ijarah contract is an agreement in terms of leases. For a more complete explanation of what an Ijarah contract is, it will be discussed in the article below.

What is an Ijarah Contract?

The definition of an Ijarah contract is an agreement that aims to transfer the benefits (use rights) of an item during the validity period of the Ijarah contract, namely after payment of rental wages, without being followed by a change of ownership of the goods.

Definition of Ijarah Contract According to the Law

According to Law Number 21 of 2008 concerning Islamic Banking, the definition of an Ijarah contract is an agreement to provide funds in the context of transferring the usufructuary rights (benefits) of an item, which is based on the lease transaction. Where this transfer is not followed by a transfer of ownership of the goods themselves.

According to Law Number 19 of 2008 concerning Sharia Securities, an Ijarah contract is an agreement in which one party leases the rights to its assets to another party based on the agreed fee and rental period.

Please read about Leasing Definition, Types, Benefits, And Examples Of Companies

Understanding Ijarah Contracts According to Experts

According to Rachmadi Usman, the definition of an Ijarah contract is a lease agreement on an item belonging to the bank (muajjair) by the customer or the lessee (musajir), where after the contract validity period ends, the leased goods will be returned to the muajjair .

According to Wiku Suryomurti, the definition of an ijarah contract is an agreement in which the owner of the goods (the lessor) is committed to granting the right of use (benefits) of the goods to the tenant during the validity period of the Ijarah contract, by always following the obligations as the lessee, namely paying the rental fee ( ujrah ).

Pillars of Ijarah Contract

In the Fatwa of the National Sharia Council No: 09/DSN-MUI/IV/2000 concerning Ijarah Financing, several pillars of Ijarah are described, including the following.

  • There is a statement of consent qabul ( shigat ) or a statement of lease from both parties.
  • There are parties who make the contract, consisting of the lessor (asset owner) and lessee (asset user).
  • The benefits of the leased assets in Ijarah must be guaranteed by the party who leases it, and the lessee is obliged to replace it with wages ( ujrah ).

Ijarah Contract Terms

In a rental agreement, it is important to always pay attention to the terms so that the transaction process can be carried out legally. Here are the terms of the ijarah contract that you need to know.

  • The contract organizers, both the lessee and the lessee, are not under compulsion. Then, the person who is not valid to carry out the ijarah contract is a person who is not yet an adult or is in an unconscious state.
  • The object being leased must be in the same form as reality and not exaggerated, thereby minimizing the element of fraud.
  • The usefulness of the object being leased is something that is permissible (permissible), not haram.
  • The provision of rewards or wages in Ijarah transactions must be in the form of something that can provide benefits to the lessee.

Also read about Sharia Savings – Methods, Types, Benefits & Savings System

Types of Ijarah Contracts

We know that the Ijarah contract scheme is “renting or providing temporary goods and services in exchange for wages”. In it there are types of ijarah contracts which are divided into several types, namely:

1. Ijarah Wa-Iqtina or Al-Ijarah Muntahia Bittamleek

In this type, an Ijarah contract occurs where an agreement or wa’ad transfers ownership rights to an object that is leased at a certain time. The transfer of ownership can be carried out after the payment transaction for the Ijarah object has been completed.

The transfer of ownership can then be carried out by signing a new contract that is separate from the previous Ijarah contract scheme. Payment of transfer of ownership can be made by grant, sale, or installment payments.

2. Ijarah Thumma Al Bai’

For Ijarah thumma al bai’, the lessee will rent an item and intend to buy the item. So that at the end of the lease, the goods become his property.

3. Ijarah Mawsufa Bi Al Dhimma

Ijarah mawsufa bi al dhimma explains clearly about the benefits and services that are rented out, but not with properties that generate benefits. Therefore, in the event of damage to the property, the contract remains in effect.

4. Ijarah Benefits

This type of ijarah has a rental object in the form of immovable assets such as clothing, jewelry, vehicles, houses, and so on.

5. Ijarah Jobs

Work ijarah leads to the rental of objects in the form of work or services, such as repairing goods, building buildings, sewing clothes, delivering packages, and so on.

6. Original Ijarah

The original ijarah is almost the same as other ijarah, namely making a lease transaction on the object of the lease that you want to do, but in this ijarah there is no transfer of ownership rights to the asset or item.

7. Advanced Ijarah

Further ijarah is a further activity regarding renting out assets or goods that have previously been or have been rented by the owner to other parties.

Ijarah Contract Example

One example of an ijarah contract is when someone is looking for a building to be used as a place of business. Then, he met the party who was renting out his property. After showing the details and condition of the building, the tenant finally agreed with the property.

So an agreement was made between the two parties. After both agree to the agreement, then the tenant can use all the benefits of the building and the renter also gets benefits through wages. Well, that’s one example of an ijarah contract.

When compared to other contracts, the advantage of the Ijarah contract is that the object of the transaction is more flexible. In addition, when compared to investment, the business risk of an Ijarah contract is lower, because the rental income tends to remain constant.

That is the full explanation of the Ijarah contract. If you want to build good financial management, it is important to pay attention to all the elements.

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