Maqasid in Risk Management: An Analysis of Ijarah Contract with Special Reference to Malaysia

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Ahmad Badri Abdullah Tawfique Al-Mubarak

Abstract

IjÄrah-based financing is currently generating greater interest among industry players and policy makers due to its minimal risk exposure. Being asset-backed it has a lesser risk overload, no default risk and better profits and now offers a viable alternative to controversial debt-based financing instruments. This paper attempts to highlight the benefits of applying the objectives (maqÄá¹£id) of ijÄrah contract and how a diligent compliance to its maqasid can help manage Shari’ah and business risks. It is also hypothesised in this study that a sincere compliance to the Shari’ah’s objectives in financial transaction (maqÄá¹£id al-mucÄmalÄt) would reduce risks in the Islamic banking industry. Current applications of ijÄrah-based instruments by Islamic banks in Malaysia are analysed to show the gaps between its theoretical presumptions and the actual applications on the ground. Some unresolved Shari’ah issues relating to the implementation of al-ijÄrah thumma al- bayc (AITAB) (a contract of leasing ending with a sale) as well as issues regarding á¹£ukÅ«k al-ijÄrah (leasing bond) are discussed in order to provide evidence for such dissonances. The study recommends constructive measures to be undertaken by policy makers to resolve the governance and legal problems with regard to the implementation of AITAB and á¹£ukÅ«k al- ijÄrah.

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