Al-Ijarah Principles in the Capital Market (PDF)

Muamalat Principles In The Capital Market Al-ijarah  Literal Meaning: The Arabic term "Ijarah" means "to give something on rent.“ Definitio n Technical Meaning: In Islamic finance, Ijarah refers to a lease or rental contract wher...

Muamalat Principles In The Capital Market Al-ijarah  Literal Meaning: The Arabic term "Ijarah" means "to give something on rent.“ Definitio n Technical Meaning: In Islamic finance, Ijarah refers to a lease or rental contract where one party transfers the usufruct (right to use) of a particular property or asset to another party in exchange for a predetermined rent.  Quranic Verses "Indeed, the best one you can hire is the strong and the trustworthy." (Surah Al-Qasas (28:26)) This verse implies the permissibility Legal Basis of of hiring or leasing based on mutual benefit. Hadith Al-Ijarah From 'Aisha (may Allah be pleased with her) who said: "The Prophet (peace be upon him) and Abu Bakar rented (hired) a guide who was skilled from the tribe of Bani ad-Dail, then from Bani 'Abdu bin' Adi." Legal Basis of Consensus of Scholars Al-Ijarah (Ijma’) Islamic scholars largely agree on the permissibility of Ijarah contracts, provided they meet the specific Shariah requirements and principles.  Lessor (Mu'ajjir) - The owner of the asset who leases it to the lessee. Lessee (Musta’jir) - The person who rents or leases the asset and is entitled to use it. Elements of Al- Asset or Service (Ma'jur) - The asset or service being leased, which must be lawful and capable of Ijarah being used while retaining its original form. Rental Payment (Ujrah) -The payment agreed upon in the contract, which must be specified clearly to avoid ambiguity. Sighah (Ijab & Qabul/Offer & Acceptance)  The asset must The asset's be owned by the The asset should usufruct lessor or be be specified, (benefit) must legally capable lawful, and be lawful in of being rented usable. Islam. out. Conditions Related to the Asset  Both parties must mutually agree upon all contract terms. Condition The rent amount and payment s Related schedule must be clear, to the avoiding any uncertainty or ambiguity. Contract The lease duration must be specified and agreed upon by both parties.  The asset must be used for the Maintenance and major repairs of the purpose specified in the contract, as asset are the responsibility of the misuse would render the contract lessor, while minor upkeep is usually invalid. the lessee's duty. Conditions Related to Usage Applications of Ijarah in the Islamic Capital Market Sukuk Ijarah (Islamic Lease Bonds) Definition: Ijarah Sukuk are Islamic securities based on an underlying Ijarah contract, where Sukuk holders essentially lease an asset and receive rental income as a return. Process: The issuer of the Sukuk acquires an asset and leases it to the lessee, generating rental income that is then distributed to Sukuk holders. Example: Infrastructure projects, such as leasing equipment or buildings, are often financed through Ijarah Sukuk, enabling investors to earn rental income from the asset’s utilizati Ijarah Muntahia Bittamleek (Lease Ending with Ownership) Concept: This variant of Ijarah allows the transfer of ownership to the lessee at the end of the lease period, either as a gift or through a separate sale agreement. Application in Islamic Finance: Commonly used for financing real estate and auto leasing, this structure allows clients to lease an asset with an eventual transfer of ownership.  Definition: Ijarah-based funds pool investor contributions to lease out various assets. Rental income from these assets is Ijarah distributed to the fund investors. Funds Example: An Ijarah fund may invest in real estate properties that are then leased out, allowing investors to earn rental income in proportion to their investment. Question Identify four (4) issues in the application of Ijarah in the Islamic capital market and discuss how this issue might impact the lessor, lessee, or investors. Provide an example to support your answer.