An Exploratory Study of Manfaʿah (Usufruct) in Ijārah Accounting from the Sharīʿah Perspective

Abstract

Purpose — The recording and reporting of usufruct in ijārah (lease) financing is a major issue in both conventional and Islamic accounting standards. The International Accounting Standard (IAS-17) was revised and replaced by the International Financial Reporting Standards (IFRS-16) to address this issue. In response, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) revised and issued a new ijārah Financial Accounting Standards (FAS-32). Considering this ongoing issue, the aim of this study is to explore māl (asset) and milkīyah (ownership) as the two significant Sharīʿah dimensions of manfaʿah (usufruct) in ijārah accounting.

Design/Methodology/Approach — This study adopts the qualitative research methodology and uses the content analysis technique whereby secondary data was collected from the related books of Islamic fiqh (jurisprudence) as well as from the accounting and Sharīʿah standards of ijārah.

Findings — The study found that manfaʿah is a māl and as per the milkīyah structure, the lessee can represent legal ownership of the leased assets under his possession, and accordingly, manfaʿah could be registered in the lessee’s name.

Originality/Value — To the best of the researchers’ knowledge, this study constitutes the first of its kind in the existing literature that focuses specifically on the Sharīʿah perspective of usufruct in ijārah accounting.

Practical Implications — The findings of this study contribute to help financial and Sharīʿah experts and Islamic financial institutions (IFIs) in their understanding of manfaʿah and the adoption and implementation of the new ijārah accounting standard. This study will also help researchers in their future research.