Policy Recommendations

IAIS works to provide pragmatic advice based on sound knowledge regarding issues facing Islamic societies and governments. Here are excerpts of policy recommendations from research articles in our Journal Islam and Civilisational Renewal.

Ensuring the compliance of Ijarah to Maqasid al-Shariah

by Tengku Ahmad Hazri

[Policy recommendations extracted from Ahmad Badri Abdullah and Tawfique al-Mubarak, “Maqasid in Risk Management: An Analysis of Ijarah Contract with Special Reference to Malaysia”, Islam and Civilisational Renewal 6:1 (January 2015), 76—91]

Notwithstanding the popularity of ijarah contracts, numerous hurdles prevent them from realizing their full potential as enshrined in the maqasid al-shariah (objectives of Shariah). In Malaysia, for instance, al-ijarah thumma al-bay’ (AITAB) (lease contract ending with sale) lacks Shariah legal framework (thus regulated by conventional finance, under the Hire Purchase Act 1967 and under the jurisdiction of the civil courts). This explains some of its anomalous features like unclear documentations, limited applicability and the presence of interest. Strictly speaking, in ijarah contracts, it is the lessor/owner, not the lessee, who should bear the costs pertaining to the asset. Instead of risk-sharing, such contracts in Malaysia today transfer risk to the lessee, as seen from the fact that the vehicle insurance has to be borne by the lessee and that the asset is not recorded as the bank’s fixed assets in its financial statement.

To resolve the said issues, the following proposals are made:

  • The Hire Purchase Bill 2002 should be expeditiously passed and made law.
  • The calculation method for profit margins or term charges in AITAB need to incorporate a profit-sharing ratio to determine the distribution of profits between the contracting parties
  • Banks should adopt a risk-sharing method in providing the AITAB financial services to their customers. Therefore they need to bear some reasonable maintenance costs of the leased-assets. Alternatively, banks could also employ the principle of musharakah mutanaqisah if they are reluctant to bear the ownership liability of the leased assets
  • Lessee should be given the option of defect (khiyar al-‘aib) in cases where the asset’s specification does not meet the contract’s agreement


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