What is Ijarah? Definition and 2 Types of Ijarah

What is Ijarah_ Its Definition and Types

Ijarah derives from Arabic, meaning “to give something on rent.” It is a type of contract in Islamic Finance that requires the bank to buy an item for a customer and then lease it back. Being very similar to the leasing contract, as a customer, you can use an asset or equipment, which an Islamic bank owns for a fixed amount of time against a fixed price. The assets in your Ijarah contract can be a car, a house, or a laptop. There are two types of Ijarah:

1. Ijarah al-Amal (Hiring/Employment)

Ijarah al-Amal refers to the type of contract when someone hires or employs a person or service on wages. The hired person provides his services in return for compensation. The employees may be doctors, lawyers, teachers, or any other person who can render valuable services.

2. Ijarah al-Ayn (Leasing an Asset)

Ijarah al-Ayn is applied to the contract when the person leases his property to someone in exchange for rent. For instance, someone rents his car to another person and gets rent in exchange for the usufruct of the vehicle. In this contract, the ownership of the property remains with the lease giver.

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