Legal Issues of IJARAH Contract and Rent-To-Own Scheme – An Analysis

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