Ijarah (Leasing Contract)

Definition of Ijarah

Ijarah (Lease) is a contract whereby the owner of an asset, other than consumables, transfers its usufruct to another person for an agreed period for an agreed consideration.

Legitimacy of Ijarah

The Sunnah of the Prophet Muhammad (SAW) refers to lease contract as follows;

The Prophet (SAW) said: “Pay the hired worker his wages before his sweat dries off”. (Sunan Ibn Majah).

The Prophet (SAW) is reported to have said: “He who hires a person should inform him of his fee.” (Al-Sunan Al-Kubra li Al-Baihaqi).

Abdullah ibn Umar narrates, “Allah’s Apostle gave the land of Khaibar to the Jews to work on and cultivate and take half of its yield.” Ibn ‘Umar added, “The land was used to be rented for a certain portion (of itsyield).” (Sahih Al-Bukhari).

The Modern Application of Ijarah in NRSP

Ordinary Ijarah can be used for lease of plant, car, vehicles and equipment, real estate, durable goods, etc. whoever in NRSP we use Ijarah mostly for leasing of agriculture equipment, motorcycles, auto rukshas and car as under;

  • The bank buy leasable assets from the market as customer demand.
  • The bank then lease those assets to clients for agreed period.
  • The user pay rentals to the bank as per agreed rental schedule.
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