The Basics of Forward Dated Ijara Contract
In the last 30-odd years, Islamic banking has grown by leaps and bounds. Its influence today is not only limited to the shores of Islamic countries but has also spread to the United States. The overwhelming success of Islamic banking practices is mainly due to the intensive research undertaken during this period to delve into the depths of Sharia laws and traditional Islamic financial practices and come up with transaction modes and means that are suited to serve the needs of modern entrepreneurs, individuals, and the dynamic world of today’s business. A strong case in point is the forward dated ijara contract, widely prevalent in the world of construction and property dealings.
Forward Dated Ijara and its Various Types
A forward dated ijara contract is drawn up when the customer enters into a leasing agreement with a bank or any other financial institution for some property which will be delivered to the former at some future date. This, in essence, is what forward dated ijara contract is all about and it is mostly entered into by customers who are keen on a piece of property that is still under construction.
There can be subtle variations in a conventional forward dated ijara contract and these variations give rise to its three principal types.
In the first kind of forward dated ijara contract, the leasing agreement specifies the price of the property and there is a certain degree of visibility regarding the rental payment that the customer will have to tender to the bank. In cases where there is no specification of the payment, the contract carries enough description of its salient features so that a conservative estimate is possible.
In the second form of forward dated ijara contract, the subject of the contract is an action that has to be completed within a certain time, as against some tangible asset. There are again variations in this form of ijara. In the first instance, a person is hired to perform some action that is specified in the ijara contract. In the other instance, the contract mentions a specific job that has to be completed within a certain time and the hire is responsible for ensuring that the job is completed on time and in the manner specified in the contract. He is however, free to engage anyone, he deems is qualified to complete the job in accordance with his own terms of payment.
In the third kind of forward dated ijara contract, the leased object is either visible or can be specifically described at the time of entering into the contract. This type of a financial agreement is entered into when the asset of the contract is something such as an animal of some use, a boat, or a car. The exact type of the object or asset has to be specified in the contract so that there is no ambiguity regarding the usefulness of the object.
The Salient Rules of Forward Dated Ijara
Whatever be the form of forward dated ijara contract entered into, there are certain rules or operating principles common to all.
The rules of forward dated ijara contract do not permit delayed payments, making substitutions in the form of payment that had been agreed to by both parties at the time of entering into the contract, and shifting responsibility of payment to a third party. For that matter, the rules also do not permit absolution of payment responsibilities.
The hirer in a forward dated ijara contract is entitled to demand a security deposit from hire to ensure that the job specified in the contract is carried out on time and meets the former’s satisfaction level. This security deposit is akin to the sureties that government agencies take from those who perform their work.
An intriguing aspect of forward dated ijara contract is that the contract is not annulled if the object of the contract is destroyed. For instance, if the service provider under this type of a contract dies or is rendered inactive or incapable of fulfilling his contractual responsibilities, the job must be carried out by another person.
The intricacy of the forward dated ijara contract notwithstanding, it is still regarded as one of the simplest forms of Islamic financial transactions. This is the reason why it is being preferred by an increasing number of people interested in fulfilling their business dreams or securing a material item of their wishes.