Ijara (Islamic Lease-to-Own)

Ijara is a Shariah-compliant financing structure where the bank purchases property and leases it to the client with transfer of ownership occurring progressively or at term end, avoiding interest-based transactions.


Structure ComponentsMechanism
Bank purchaseAcquires property outright
Lease agreementClient pays monthly rent
Ownership transferProgressive or end of term
Final paymentNominal amount to complete transfer
Payment BreakdownAllocation
Rental componentBank's profit element
Acquisition componentEquity building
Total paymentFixed for term
Title transferIncremental or final
Comparison to ConventionalKey Differences
No interestRent instead
OwnershipStarts with bank
Early settlementTypically allowed without penalty
CostOften similar total to conventional

Related Terms

Islamic Finance CertificateIslamic MurabahaDiminishing MusharakaShariah-Compliant Loan Islamic Finance

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