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24 Pt. 2 J. Legal Ethical & Regul. Isses 1 (2021)
Legal Issues of Ijarah Contract and Rent-to-Own Scheme: An Analysis

handle is hein.journals/jnlolletl2424 and id is 849 raw text is: Journal of Legal, Ethical and Regulatory Issues LEGAL ISSUES OF IJARAH CONTRACT AND RENT- TO-OWN SCHEME: AN ANALYSIS Mohd Zakhiri Md Nor, Universiti Utara Malaysia Ani Munirah Mohamad, Universiti Utara Malaysia Ain Husna Mohd Arshad, Universiti Utara Malaysia Najah Inani Abdul Jalil, Universiti Utara Malaysia ABSTRACT Rent-to-own scheme is one of the Islamic financing products which have been introduced based on the well-known and widely practiced Islamic concept of transaction, which is ijarah. The purpose of this concept paper is to explain the legal provisions that enable Islamic financial institutions to adopt rent-to-own; and to analyse the elements of ijarah as required by the Shariah are fulfilled in the rent-to-own scheme within the Malaysian context. Two legal issues were discussed, i.e., whether the Islamic banks are entitled to acquire the property and in the event of customer's death, who shall continue paying the rent to the bank. Few decided cases were discussed in order to illustrate issues that could arise in relation to practical legal aspects of ijarah in Malaysia. This paper concludes that the rent-to-own scheme is in line with Shariah. The Bank Negara Malaysia has issued several guidelines and regulations to further ensure that it is Shariah-compliant. Therefore, such kind of scheme can be utilized by the community, particularly given the benefits or maslahah that it gives to the community. Keywords: Ijarah Contract, Rent-to-Own, Legal Analysis, Legal Issues, Islamic Finance. INTRODUCTION Ijarah comes from the word ajara which means to recompense, compensate or give a consideration and return. The word ujrah refer to rental payment while the word ajr refers to employee's wages. Ijarah primarily refers to rental and hire contract that employ the services of others. The practice of ijarah is evidenced in al-Quran and al Hadith. In al- Quran, verses such as al-Kahf: 77, al-Qasas:26 and al-Talaq:65 refer to the practice of ijarah and in al-Hadith, the report of pay the employee his wages before the sweat of his brow dries up reflects the employer and employee relationship. Aside from the practice of ijarah as an employment relationship, the Prophet's (PBUH) companions practiced ijarah for both the employment contract and the rental of property (Kamali, 2007). To comply with the requirements of Shariah is a precondition to ensure that the financial products and services are legitimate to be offered by Islamic institutions and accepted by the customers. Establishing the necessary operating framework and infrastructure for an Islamic financial institution (IFI) is critical to ensuring that Islamic financial transactions are Shariah compliant. A regulation which is based on Shariah is structured to ensure Shariah compliance, Legal and Ethical Affairs 1 1544-0044-24-S5-774 Citation Information: Nor, M.Z.M., Mohamad, A.M., Arshad, A.H.M., & Jalil, N.I.A. (2021). Legal issues of ijarah contract and rent- to-own scheme: An analysis. Journal of Legal, Ethical and Regulatory Issues, 24(S5), 1-8 Volume 24, Special Issue 5, 2021

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