Short answer
Ijarah means hire: either renting out an asset, or hiring a person's work, for a known payment over a known time. In Islamic finance it is a lease where the bank owns a house, car or machine and rents it to you. It is halal when the owner keeps the risks of ownership and the rent is clear.
Ijarah is a valid contract on a usufruct for a known return. The rent, the period and the use must be known. The lessor bears the risks and major costs of ownership; the lessee bears costs of ordinary use and is liable only for misuse or negligence. Rent is due only once the asset is delivered and usable.
The four schools agree on this.
Explanation
The Quran mentions hiring in the story of Musa: "O my father, hire him. Indeed, the best one you can hire is the strong and the trustworthy" (28:26). The Prophet ﷺ hired a guide for the Hijrah, and warned that Allah Himself will oppose the one who hires a worker, takes the work and does not pay him.
Two kinds of ijarah:
- Hiring a person: employment and services. The wage, the work and the time must be known.
- Leasing an asset: a house, shop, car or equipment, for rent over a set period.
Rules for an Islamic lease:
- The bank must own the asset before leasing it, and rent starts only when you receive it.
- If the asset is destroyed without your fault, the loss is the bank's and the rent stops.
- Insurance and major structural repairs belong to the owner; routine upkeep can be put on the tenant.
- Rent may be reviewed at agreed intervals, but it must be agreed for each period before it starts.
- A late-payment charge cannot become the bank's profit; it goes to charity.
Ijarah ending in ownership: lease-to-own car and home finance is allowed when the transfer of ownership at the end is a separate sale or gift promised in a separate document, not part of the lease itself. Two contracts merged into one, where you do not know whether you are renting or buying, is what the scholars avoid.
See Is leasing a car halal? and Is an Islamic mortgage halal? The four schools accept ijarah, with small differences in detail.
The evidence
Quran, Surah Al-Qasas 28:26
قَالَتْ إِحْدَىٰهُمَا يَٰٓأَبَتِ ٱسْتَـْٔجِرْهُ ۖ إِنَّ خَيْرَ مَنِ ٱسْتَـْٔجَرْتَ ٱلْقَوِىُّ ٱلْأَمِينُ ﴿٢٦﴾
One of the women said, "O my father, hire him. Indeed, the best one you can hire is the strong and the trustworthy."
Hiring a person's work is lawful.
Quran, Surah At-Talaaq 65:6
أَسْكِنُوهُنَّ مِنْ حَيْثُ سَكَنتُم مِّن وُجْدِكُمْ وَلَا تُضَآرُّوهُنَّ لِتُضَيِّقُوا۟ عَلَيْهِنَّ ۚ وَإِن كُنَّ أُو۟لَٰتِ حَمْلٍۢ فَأَنفِقُوا۟ عَلَيْهِنَّ حَتَّىٰ يَضَعْنَ حَمْلَهُنَّ ۚ فَإِنْ أَرْضَعْنَ لَكُمْ فَـَٔاتُوهُنَّ أُجُورَهُنَّ ۖ وَأْتَمِرُوا۟ بَيْنَكُم بِمَعْرُوفٍۢ ۖ وَإِن تَعَاسَرْتُمْ فَسَتُرْضِعُ لَهُۥٓ أُخْرَىٰ ﴿٦﴾
Lodge them [in a section] of where you dwell out of your means and do not harm them in order to oppress them. And if they should be pregnant, then spend on them until they give birth. And if they breastfeed for you, then give them their payment and confer among yourselves in the acceptable way; but if you are in discord, then there may breastfeed for the father another woman.
Paying for a service is approved in the Quran.
Sahih al-Bukhari 2227
Sahih... ورجل استأجر أجيرا فاستوفى منه ولم يعط أجره ...
"And a man who hired a worker, took the full work from him and did not give him his wage."
Allah opposes those who break the terms of hire.
Sahih al-Bukhari 2264
Sahih... واستأجر رسول الله صلى الله عليه وسلم وأبو بكر رجلا ...
"The Messenger of Allah and Abu Bakr hired a man."
The Prophet ﷺ himself hired a guide for payment.
Where the ruling is recorded
- al-Hidaya, Kitab al-Ijarat. Definition of ijarah and conditions on rent, period and use.
- AAOIFI Shari'ah Standards, Standard on ijarah and ijarah muntahia bittamleek. Rules for leases ending in ownership.
- Mufti Taqi Usmani, An Introduction to Islamic Finance, Chapter on ijarah. Owner's risks and the separation of lease and sale.
This answer is pending review by the scholars on our team. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.