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The Application of Ujrah in Malaysia

To summarize, Ujrah is referring to a rental or fees for usage of labour and benefits
that is based on fixed fee or fixed interest rate. Ujrah basically is a service providing contract
which an agreement is made between two parties. Both of the party must have mutual consent
whereby one party agrees to provide certain services to the other party and the other party
agrees to pay for the services provided. The agreement must be in physical form which
specifies the nature of the services provided, how long it will be provided and how much the
ujrah to be received. 1
Ujrah is implemented worldwide by the Islamic financial system and Islamic banks
may make an ujrah contract to provide some services to another for a payment. Furthermore,
the aim for the implementation of ujrah is to avoid riba and at the same time to prevents the
lessee from running away from their debt.
In Malaysia, the concept of ujrah has been introduced by HSBC Amanah Malaysia
Berhad and has been applied in Credit Card-I whereby the Bank will give the credit facility
to the customer through the application of Credit card Account by the customer and the bank
will maintains the credit card facility and then charges the fees of ujrah for the services to the
customer.2 After that, the customer will then pay the charges according to the usage of the
Credit card. The operation and business framework that has been introduced by HSBC
1 Dr.Md.Abdul Jalil. (2010). Financial Transactions in Islamic Banking are viable
alternatives to the Conventional Banking transactions. Retrieved: [2015, May 13]
2 Dr. Azman Mohd Noor. (2013). A Review of Shariah Compliant Instrument for
Islamic credit card as adopted by Malaysian Financial Insstitution. Retrieved: [2015, May 13]

Amanah, can be analyzed that the bank is applying the Islamic instrument of Qard which is
giving a loan and charging the ujrah fees for it.
Starting from that, many of the Islamic banks applied the same concept of ujrah that
has been introduced by the HSBC Amanah Malaysia Berhad. In among the sector that has
been implemented Ujrah is Standard Chartered whereby this bank has implemented ujrah for
their Islamic credit card that has been supported by many experts.
Other than that, PTPTN Education Loan Scheme was also converting from their 3%
of interest rate to 1% of fixed interest rate which is effective since 1 st June of 2008. Basically,
the implementation of ujrah by PTPTN was clearly to eliminate the riba as a study loan
scheme must be free from the elements that are prohibited by the Shariah especially in the
context of usury or riba. In the PTPTN, the service charge must reflect the actual cost and it
cannot be based on a percentage of the loan 3. This is because, any profit owned by a lender
can be categorized as riba. Thus, changing the old concept to the new concept of 1% Ujrah
loan seems like a good idea which complies with the Syariah principles. It is easier to
calculate and will also encourage the students to pay on time and not run away from their
The Benefits of the Implementation of Ujrah
The benefits of ujrah have been long discussed in the Syariah system. The
implementation of ujrah is very important as it is comply with the Syariah rulings and
principles. This is because, under the conventional bank in Malaysia, the fees is charged by
the percentage of the outstanding amount while under ujrah, it is a fixed fee concept which
3 Prof Madya Dr Jasri Jamal. (2012). Prohibition of Riba in Islamic Finance: A case
study on the PTPTN Education Loan. Retrived:
[2015, May 13]

means that only fixed fee will be charged to the customer and it is not based on interest rate.
The loan would not be levied with any floating percentage fees dependent on the outstanding
balance. The sole function of ujrah is to prohibit riba as Allah SWT had stressed on the Quran
many times for us to avoid riba. These are some of the verses on the Quran and the saying of
the Prophet Muhammad that prohibits us from consuming riba;
Those who devour riba will not stand except as stands one whom the Evil One by his
touch hath driven to madness. That is because they say: Trade is like riba, but Allah
hath permitted trade and forbidden riba. Those who after receiving direction from
their Lord desist shall be pardoned for the past; their case is for Allah to judge; but
those who repeat the offence are companions of the fire: they will abide therein
(Al-Quran, Al-Baqarah 2:275)
If ye do it not, Take notice of war from Allah and His Messenger: But if ye turn back,
ye shall have your capital sums: Deal not unjustly, and ye shall not be dealt with
unjustly.5 (Al-Quran, Al-Baqarah 2:279)
There are three things. If Allahs Messenger had explained them clearly, it would
have been dearer to me than the world and what it contains: These are kalala, riba,
and khilafa.6 (Narrated by Umar Al-Khattab)
These two verses from Quran and the hadith clearly state the prohibition of riba which
nowadays is considered in the terms of interest. Therefore, ujrah has been implemented to
4Al Quran Qareem, Surah al-Baqarah verse 275
5 Al Quran Qareen, Surah Al-Baqarah verse 279
6 Hadith Narrated by Umar Al-Khattab.

fight the law of conventional and for being syariah based financial system. This is another
step towards reaching the goal of interest-free banking system.
In applying these rulings to the implementation of ujrah, it is clearly proven that ujrah
forbids the consumption of riba. For instance, PTPTN method in implementing ujrah was
acknowledged by many people as it helps the students who are undertaking their studies to
avoiding the consumption of riba. In PTPTN, the 1% of ujrah fee that was being charged is
for the used to pay the salary of the workers and document fees and operating cost.
Other than to prevent the consumption of riba, the concept of ujrah also prevent the
borrower from running away from their debt as Islamic teaching has stresses on the
avoidance of late payment which can be seen in the hadith of Prophet Muhammad which
Whoever takes the money of the people with the intention of repaying it, Allah will
repay it on his behalf, and whoever takes it in order to spoil it, then Allah will spoil
him.7 (Narrated by Aby Huraira)
Based on this hadith, it is clearly meant that running away from your debt is bad. Therefore,
with the implementation of ujrah, it will help the borrower to be able to pay their debt and the
lender will get their money. For example, in the application of ujrah in the PTPTN, the
borrower or the debtor will be entitled to being penalized with extra 1% interest as a penalty 8.
This is because, PTPTN have the rights to issue this penalty in order to avoid the late
payment from the debtor or the borrower. Thus, the implementation of 1% interest of penalty,
it will encourage all of the students to pay on time for avoiding from being penalized. Besides
7 Hadith Narrated by Abu Huraira.
8 Muhammad Yusri Bin Yusuf. (2012). Ujrah and PTPTN. Retrieved: [2015, May 14]

that, the penalty would not be used by the PTPTN itself, but it was used for charitable
The concept of Ujrah was acknowledged by many people as it was establish to help those
people who are lack of financial to pay the loan. This concept of ujrah helps those people
because it uses a low interest rate which is 1% that uses flat rate calculation. Therefore, the
concept of ujrah was easy to understand by the people as the calculation was clearly show the
user how much amount they must pay, how many years and how much interest that they will
Criticism on the Concept of Ujrah
The implementation of ujrah has so many advantages and benefits. However, they are
also some criticism on the ujrah concept. Some of the problems or issues that has been raised
is that, the charges or fees that been imposed in the customers utilization of credit financing
given by a bank may appear as a benefit of a loan if it was not accurately mentioned or stated
by the bank. Hence, one may ask for some questions like; what is the justification of the
Actual Management Charge that is imposed on the customers account? Was it an actual,
logic and not fictitious?
In the credit card system, the cardholders who pay in full amount on or before the
payment due date of the previous months statement will have the privilege to enjoy
management charge-free period of 20 days for all retail transactions but only for the current
month. Meanwhile, the cardholders who only partially settle their previous months
outstanding balances whether on or before the payment due date will be charged an actual
management charge as per applicable tiered structure for all the retail transactions from the

posting date of the said retail transactions.9 Therefore, some of the issues or questions may
rise such as what is the justification of the charges which is imposed on the borrower who
partially paid or settle their loan? Whether the charge is imposed because of the late payment
or because of the operation cost of the delayed payment? Whether the delayed payment may
constitute some costs? Thus, if the charge was imposed because of the partially or delayed
payment, then it will be considered as the beneficial of the loan which is strictly forbidden by
the Syariah.
There are many views from the jurist regarding the issues of the benefits to the lender
whereby most of the Hanafis ruled that any loan that benefits to the lender is forbidden if the
benefit was stipulated as a condition but if the benefit was not stipulated as a condition and
was not expected, therefore there is no harm.10
Furthermore, the Malikis have ruled that any loan which results in a benefit to the lender is
defective or fasid, because it constitutes a riba. Therefore, it is forbidden to benefit the lender
from any property of the borrower. In addition, the Malikis permit increases the quality in
repayment of the loans if they were not expected, conditioned or promised 11. However, the
Malikis stated that the repayment of debt with increase is permitted before or after the
maturity of the debt.

9 Dr. Azman Mohd Noor. (2013). A Review of Shariah Compliant Instrument for
Islamic credit card as adopted by Malaysian Financial Insstitution. Retrieved: [2015, May 14]
10 Ibn Abidin (Hanafi) Rud Al-Mukhtar, (Beirut: Dar al-Kutub al-ilmiyyah, 1994),
Vol.7, 395, Wahbah al-Zuhayli, Vol.1, 376.
11 Al-Dardir, Al-Syarh Al-Saghir, vol.3, (UAE: The Ministry of Justice and Islamic
Aspects, 1989), p.295-296. Wahbah al-zuhayli, Financial Transactions in Islamic
Jurisprudence, vol, 377.

Moreover, the Hanbalis and the Shafiie have ruled that any loan which resulted to benefit the
lender is not permitted. This is because they follows one hadith that prohibit the loans that
beneficial to the lender which was narrated that Ubay ibn Kaab, Ibn Masud and Ibn Abbas
which states;
All forbade any loan that result in a benefit to the lender12

Suggestions on improving the implementation of Ujrah in Malaysia

To conclude based on all the advantages and the criticism of the concept of ujrah, there are
some suggestions to improve the implementation of ujrah especially in Malaysia. Shariah law
is widely open to interpretation and Shariah boards and the jurists often have divergent views
on the Shariah issues. Therefore, there is no practical guide as to what constitutes as an
acceptable and unacceptable of Islamic financial instrument. This is because one issue may
be accepted by one Syariah board but may also be rejected by the other Shariah board.
Therefore, in analyzing the structures of Islamic banking system in the application of
Islamic credit card in Malaysia, it is suggested that the banking business operations and also
the models should be reviewed regularly from time to time towards the Shariah compliant.
This is because, some muslim jurist or scholars and other Shariah committees might have
approved some structure on the interim basis while there are more studies are done on finding
out the other alternatives. Hence, in this light a due diligent Shariah compliant audit and
inspection are necessary from time to time.
As discussed above, it is argued that the high management charges for the services
rendered which is ujrah which are benchmarked with the conventional credit cards does not
12 Hadith Narrated by Al-Baihaqi in Al-Sunan Al-Kubra

reflect the actual fees of services. The high fee shows that the Islamic credit card aims and
functioning to make a revenue and profit and not to become alternatives to the conventional
credit card, however to compete with it instead. The main issue is that the nature of
conventional credit cards is to provide loan to the borrower and making revenue from the
interest charged, whilst charging interest from loan is constitute as a riba which is totally
prohibited in Shariah rulings.
As such, it is argued that Shariah wise, in which to manage credit card transaction is
not among the best way to generate or making profit. The bank can only generate a profit
from the commissions which are accrued from the merchants or services centers from the
whole wide world (interchange fees paid by merchant acquirers). Only such commission is
permissible in Shariah.13
All in all, the implementation of ujrah in Islamic banking system should be revised from time
to time in order for the Islamic credit card and its operations is complies with the Shariah

13 Bank Negara Malaysia. (2010). Shariah Resolutions in islamic Finance.

nd_edition_EN.pdf. [2015, May 14]