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Islamic Finance by Keon Chee, Daud Vicary Abdullah

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TYPES OF ISLAMIC LEASES

Like conventional leases, Islamic leases have several variations although each is fundamentally based on either an operating or a financial lease.

Operating Leases

Like a conventional operating lease, an ijarah contract is an agreement between a lessor, who owns an asset, and a lessee who needs to use the asset and who cannot afford to buy it or does not want to own it. Let us look at a simple example to see how ijarah works.

Lease with Two Parties—Lessor and Lessee

Suppose Imram finds a car he wishes to lease for two years and he chooses an ijarah contract instead of a conventional lease. You will see that it is no different from a conventional operating lease at this point (see Figure 9.4).

   The dealer transfers ...

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