What is Ijara Contract?
Ijara is the Sharia-compliant equivalent of a lease. The lessor (often a bank) buys an asset and rents it to the lessee for an agreed rent over a defined period. Ownership stays with the lessor; the lessee gets the use of the asset. Ijara-wa-Iqtina adds an end-of-term sale option.
How It Works
- Operating ijara: rental only; lessor keeps ownership and major maintenance obligations
- Ijara-wa-Iqtina (financial ijara): includes a promise to sell or gift the asset to the lessee at the end
- Rent must be defined; major maintenance and insurance stay with the lessor
- Allows Islamic-compliant financing of cars, equipment, real estate, and aircraft
- Governed by Sharia standards from AAOIFI and IFI Boards
Saudi Context
Saudi banks (Al Rajhi, Alinma, Saudi National Bank) and finance companies offer Ijara extensively — car finance, equipment finance, and commercial real estate. SAMA licenses and supervises the finance companies offering ijara-based products under the Real-Estate Finance and Finance Companies Control Laws.
Example
A Saudi medical clinic buys a SAR 2M MRI machine through ijara-wa-iqtina. The bank owns the machine and rents it to the clinic for SAR 35K/month over five years. At the end, the bank gifts the machine to the clinic under the pre-agreed promise — Sharia-compliant equipment finance.