This document discusses Islamic banking principles related to lease (ijarah) contracts. It covers topics such as: 1) The process for a customer to request an institution acquire an asset to lease through a promise to lease agreement with security deposits. 2) Requirements for valid ijarah contracts including specifying the asset, duration, rental terms, and consequences for late payments or contract breaches. 3) Permissible forms of ijarah contracts and rules regarding leasing assets, collecting rentals, contract changes, termination conditions, and contract renewals.

1. Presented by: M.Farhan
Subject: Islamic Banking & Takaful
Institute: Riphah Intl University, ISB

2. Promise to Lease (An asset)
• 2/1 In principle, an Ijarah contract is executed for an
asset owned by the lessor.
• However, it is for a customer to request an institution
to acquire the asset.
• 2/2 An agreement covering a number of ijarah
transactions b/w the institution and customer.
• General terms and conditions of agreement
between two parties.
• There may either be a separate lease contract for
each transaction.

3. • 2/3 It is permissible for institution to require the
lease promisor to pay sum of money as guarantee to
the institution.
• If the customer breaches his promise
• The amount deposited by the customer as security
can be held on

4. 3/1 Acquisition of an asset to be
leased
• . 3/1 (A) If the asset is owned by the company an
ijarah contract may be executed as agreement
reached by the two parties
• (B) If the asset is to be required from the from the
customer or third party then ijarah contract shall not
be executed.
• 3/2 As stated in 3/1 (B)

5. Concluding an Ijarah contract and forms of
Ijarah
• 4/1 Signature of the contract and consequences
• 4/1/1. A lease contract is a binding contract
• 4/1/2 The duration of ijarah contract must be
specified in the contract
• 4/1/3 If the lessor fails to deliver the asset to the
lessee on the date specified.
• 4/1/4 Earnest money may be taken at the execution
of lease contract.
• Earnest money is also treated as the advance
payment of the rental

6. 4/2 Forms of the ijarah contract
• 4/2/1 Ijarah contracts may be executed of the same
asset for different periods for several lessees.
• Two contracts cannot be executed for in respect of
same asset for the same period. Such arrangement is
called Successive leases.
• 4/2/2 If the lessor signs an ijarah contract for a
particular asset for a stated time, he cannot sign
another ijarah contract.

7. Subject matter of Ijarah
• 5/1 Rules Governing benefit and lease property
• 5/1/1 The leased asset must be capable of being used.
• 5/1/2 An ijarah contract may be executed for a house or
chattel, even with a Non-Muslim, if the use is
permissible.
• 5/1/3 The lessee must use the asset in suitable manner
and comply with conditions which are acceptable in
Sharia.
• 5/1/4 The lessor must accept the responsibility for any
defects of the leased asset.
• 5/1/5 if the benefit from the leased asset is impaired
wholly as a result of the lessees misconduct.

8. 5/2 Rules Governing lease rentals
• 5/2/1 The lease rental may be in cash or in goods
or in Services.
• 5/2/2 The rental must be specified either in
installments or on spot payment
• 5/2/3 In case the rental is subject to changes, it is
necessary the amount of rental of the first period
is specified.
• It is then permissible that rentals for subsequent
periods be determined according to a
benchmark.

9. • 5/2/4 The parties may agree to amend the
rentals of future periods.

10. Guarantees and treatments of Ijarah receivables
• 6/1 Permissible security of all kinds may be taken to
secure the rental payments.
• 6/2 Two parties may agree rental be paid instantly or
in Installments.
• 6/3 No increase in the rental be stipulated by the
lessor in case of delay payment by the lessee.
• 6/4 It may be provided in the ijarah contract that if
the lessee delays payment for no good reason
undertakes to donate certain amount of percentage.

11. Changes to the ijarah contract
• Selling of or damage to the leased asset
• 7/1/1 If the lessor sells the leased asset to lessee the
ijarah contract is terminated due to the transfer of
ownership.
• 7/1/2 The lessor may sell the leased asset to the
third party.
• 7/1/3 In case of total destruction of leased asset
ijarah contract is terminated.
• The lessee will not pay the remaining installments.

12. • 7/1/4 The lessee will not be held liable for any
damage or destruction unless such damage is a
result of negligence or misconduct on behalf of
lessee.
• 7/1/5 If the lessee stops using the leased asset or
return to the owner without his/her consent, the
rental will continue to be due in respect to remaining
time period of ijarah.

13. Termination, expiry and renewal of
ijarah contract
• 7/2/1 It is permissible to terminate the lease contract
by mutual consent.
• 7/2/2 The lessor may stipulate that ijarah contract be
terminated if lessee fails to pay rent or fails to pay on
time.
• 7/2/3 An ijarah contract does not terminate with the
death of either party.
• 7/2/4 An ijarah contract expires with the total
destruction of the leased asset
• 7/2/5 The lease expires upon the expiry of an item.