In brief
Ijarah is the leasing of an asset in return for rent: the lessor remains the owner and bears the risks of ownership. In ijarah ending in ownership, the asset passes to the client at the end, through a sale or a gift concluded separately. The International Islamic Fiqh Academy has set out the permitted and prohibited forms (resolution 110, 2000).
Simple leasing
The lessee pays rent for the use of an asset; the owner keeps ownership, structural maintenance and the risk of loss. The rent may be fixed or reviewed period by period, according to rules known at the outset.
Leasing ending in ownership
To finance a house or a car, the bank buys the asset and leases it to the client; at the end, the client becomes its owner. The International Islamic Fiqh Academy laid down the following rules (resolution 110 (4/12), Riyadh, September 2000):
- Two separate contracts: first the lease, then, at the end, a sale or gift by a distinct contract, or a promise to sell or to give.
- A genuine lease: it must not conceal a sale; the rules of leasing apply throughout its term.
- The risk stays with the owner: loss of the asset through no fault of the lessee, major maintenance and insurance (which must be cooperative) are borne by the bank.
The following are prohibited: automatic transfer of ownership with the last rent payment without a new contract, and a sale “suspended” until all the rent has been paid.
Ijarah and conventional leasing
Conventional leasing (finance leases, leases with an option to buy) often mixes leasing and sale, with late-payment penalties and insurance borne by the client. Diyanet has ruled leasing permissible in Türkiye, as a new contract accepted by custom (decision 2022/68). The Academy, for its part, requires the conditions above. See car finance and leasing.
In practice
Ijarah is used for home finance (often combined with diminishing musharakah), for vehicles, for business equipment and for ijarah sukuk. The comparison tool shows the cost of financing through rent compared with a loan.
Frequently asked questions
Who pays for the insurance in an ijarah?
The owner, that is the bank, according to the International Islamic Fiqh Academy, and the insurance must be cooperative (resolution 110). In practice, the cost is often built into the rent.
Can the rent follow a market rate?
The standards accept rent that is reviewed period by period according to a benchmark known in advance, with each period’s rent fixed before it begins. What is prohibited is increasing an existing debt.