The document discusses the concept of ijarah in Islamic finance, which refers to a leasing contract where an asset is leased to a client in exchange for rental payments over a period of time. It provides details on the different types of ijarah contracts, including operating ijarah and ijarah muntahia bit tamleek, and explains the accounting treatment for ijarah transactions according to the Financial Accounting Standard No. 8.

1. *

2. *
*Nur Adlina Adli DIA 101006
*Siti Humairah Hasim DIA 101014
*Nor Asiyah Ismail DIA 101017
*Muhd Aiman Rahim DIA 101028

3. *
*Comes from the word ajr meaning reward or
wages for work done or services rendered.
*In fiqh means a contract for hire of persons or
services or ‘usufruct’ of a property.
*In Islamic banking point of view, refers to an
Islamic leasing contract of land, property or
equipment which is leased to a client for a
stream of rental payment.

4. *
Operating ijarah Muntahia bit tamleek
Situation Contracts that do not Contracts that end up with the
end with the transfer transfer of ownership of leased
of ownership of leased assets to the lessee.
assets to the lessee.
Transfer of - Gift at the end of period
ownership - Token of sale consideration
at the end of period
- Sale at specified amount
- Sale during the lease period
for the remaining
installments
- Gradual transfer during lease
period

5. *
Beneficial use
Transfer of asset of asset
Financier Entrepreneur
Vendor (Lessee)
(Lessor)
Payment of Lease rentals
purchase price
* Another popular instrument – 15% of the transactions
* Right available to lessee to purchase
* Asset ownership risk with owner; operational risks with lessee
* Features close to a financial lease
* Used for machinery, equipment, property, vehicles, aircraft etc.

6. *
. .
VENDOR ISLAMIC BANK Agreement CUSTOMER
* The customer approaches the Bank with the request for financing
* The Bank purchases the item required for leasing and receives title
of ownership from the vendor
* The Bank makes payment to the vendor
* The Bank leases the asset to the customer
* The customer makes periodic payments as per the contract
* The asset title transfers to the customer based on the method
disclosed in the agreement

7. * Gift at the end of the period:
- The ownership of the asset is transferred to the lessee
for no consideration by entering into a gift contract in
fulfillment of a prior binding promise, upon the
settlement of the last lease rental payment.
* Sale for a token consideration at the end of the Ijarah
contract:
- Initially there is a Ijarah contract and a promise to sell
to sell by lessor if the lessee wishes at a token
consideration. The consideration can be any agreed
amount between the parties.
* Sale at the end of the lease for an amount specified in
the lease:
- This is done through an Ijarah contract together with a
promise to enter into a sale contract. The sale contract
will include the amount to be paid after the expiry of
the Ijarah contract.

8. * Sale during the lease period for the remaining
installments:
- Executed together with a promise to sell the asset to
the lessee, whenever the lessee wishes to buy the asset
during the period of the lease for a price equal to the
remaining installments.
* Sale through gradual transfer of title:
- Gradually transfer the title of the asset to the lessee
until the asset is fully transferred. The price need to be
determined so that a proportionate share is transferred
at every period.
- There needs to be a sale contract for each transfer and
a reduction in lease rental as the ownership of the bank
decreases. In case the Ijarah contract is revoked prior to
complete transfer, the property will be jointly owned by
the bank and the ex lessee.

9. *

10. *
*The wording: which includes an offer and
acceptance
*Contracting parties: a lessor (owner of leased
assets) and a lesser (the party who reaps the
services of the leased assets)
*Subject matter of the contract: which includes
the consideration (rent) and the benefit from
the use of the asset.

11. *
*The basic rule of the Ijarah is that it should be
executable.
*If the commencement is not stipulated, then the
Ijarah will start from the time of the contract and
will be executed as from that time.
*An Ijarah contract according to which execution
of the contract is deferred to a future date is
valid.
*An Ijarah cannot be made contingent on a future
event or a condition.

12. *
*Both parties should be of sound mind and
judgement.
*An Ijarah is valid if the contracting parties is a
competent person who is qualified to dispose of
funds.
*They should have the mutual consent.
*For the purpose of enforceability, the lessee
should have the authority to act in order to create
a contract.

13. *
Benefit Rent
Consists of two parts: - Is what the lessee is
- The contract should include committed to pay as a
the use of a benefit of a consideration for the benefit
specified asset. enjoyed by him.
- The contract should include a - The majority of fuqaha have
known act. permitted the payment of
rent in the form of services.
Conditions: Flexibility in determining the
- The benefit of using the rent:
asset, not the use of it as - Can be determined in terms
such, should be the subject of time, place and distance.
matter of the Ijarah. - Example: ‘if you sew me this
- The benefit should be subject dress on this day, its charge
to valuation. No agreement will be RM`00’
can be concluded on what is
considered permissible but
does not have a price.

14. Benefit Rent
- The fulfillment of the benefit Entitlement of the rent and its
should be of a permissible due time:
nature. - Entitlement to the rent rent
- Ability to fulfill the benefit does not come a right as per
should be real and in the contract itself
accordance with Shari’a - Rather, it becomes right by
- The benefit should be fulfilling the condition in the
identified in such a way as to contract or by subject matter.
remove lack of knowledge
(Jahala) which leads to
dispute.

15. *
* Making the leased asset available
- Includes equipping and preparing the asset in the manner which
the specified benefit to be enjoyed.
- The lessor is obliged to rectify if anything happens during the
period of the lease that prevents the lessee from enjoying the
benefit, for a reason not attributable to the lessee.
* Guarantee in respect of defects
- In Ijarah, the option of defect is treated as is sale. The defect
which entitles a lessee to an option is one which causes an
impairment in the benefits which are the subject matter of the
contract.
- The lessee shall have the option of revoking the contract or
accepting the impaired benefit while being obliged to pay the
full rent.

16. *
* The lessee is responsible for keeping the leased asset
intact and for payment of the rent.

17. *

18. * Financial Accounting Standard No. 8 (FAS 8) sets out the
accounting rules for recognizing, measuring, presenting and
disclosing Ijarah and Ijarah Muntahia Bit Tamleek transactions.
1. 3. 4.
2. Leasing Expenses Disposal
Acquisition
of assets and Gains /
of assets
Revenues Losses
3a. 3b.
3c.
Initial Depreciation
Ijarah
expenses &
revenue
maintenance

19. * Operating Ijarah in the books of the lessor.
1. Assets acquired for Ijarah:
- Assets acquired is recognized at historical cost.
- This includes net purchasing price plus all expenses
necessary to bring the asset to intended use.
- Example of expenses are custome
duties, taxes, insurance.
2. Ijarah revenue:
- Should be allocated propotionately to the financial
period of the lease term.
- Presented in the income statement as Ijarah revenue.

20. 3. Direct initial cost:
- If material, should be written off as incurred. If
immaterial, should be allocated over the lease periods.
4. Repairs of leased assets:
- Repairs necessary to secure the services of the leased assets, if
immaterial, should be written off in the period, while if repairs
are material and varied, a provision is set up by regular charges
to income.
5. At the end of the financial period:
- Amortization of initial material direct costs, cost of repairs to be
charged against provision, depreciate assets, Ijarah installments
receivable to be at cash equivalent.