Islamic Finance
Ijara

Ijara
or Leasing is the sale of the usufruct of an asset. Leasing is a contract whereby the owner of something transfers its usufruct to another person for an agreed period, at an agreed consideration. The subject of lease must have a valuable use. Therefore, things having no usufruct at all cannot be leased.

It is necessary for a valid contract of lease that the corpus of the leased property remains in the ownership of the seller, and only its usufruct is transferred to the lessee. Thus, anything which cannot be used without consuming cannot be leased out. Therefore, the lease cannot be affect in respect of money, eatables, fuel and ammunition etc. because their use is not possible unless they are consumed. If anything of this nature is leased out, it will be deemed to be a loan and all the rules concerning the transaction of loan shall accordingly apply. Any rent charged on this invalid lease shall be interest charged on a loan.

As the corpus of the leased property remains in the ownership of the lessor, all the liabilities emerging from the ownership of the lessor shall be borne by the lessor, but the liabilities referable to the use of property shall be borne by the lessee.

An Ijara Muntahia bi Tamlik is a special Leasing contract which ends with ownership transfer to the lessee.