IJARAH
Al-Ijarah (Leasing)
An Al-Ijarah contract is where the financier buys and leases equipment or other assets to the business owner for a fee or more often called rental income. The duration of the lease as well as the fee must be set in advance and mutually agreed. To be acceptable as an Islamic financial product, the leasing contract must meet the following conditions:
The service that the asset is supposed to provide and for which it is being rented should be definitely and clearly known to both parties; The asset remains in the ownership of the lessor who is responsible for its maintenance so that it continues to givethe service for which it was rented;The leasing contract is terminated as soon as the asset ceases to give the service for which it was rented. If the assetbecomes damaged during the period of the contract, the contract will remain valid; andThe price of an asset that may be sold to the lessee at the expiry of the contract cannot be pre-determined. It can be determined only at the time of the expiry of the contract.
Al-Ijarah wal-`Iqtina (Lease to Purchase or Hire Purchase)
An Al-Ijarah wal-`Iqtina contract is just the same as that of the Al-Ijarah except that the business owner is committed to buying the equipment at the end of the lease period. Fees previously paid constitute part of the purchase price. This type of lease to purchase agreement is commonly used for home financing.
