Also known as ijarah. An Islamic finance technique used to finance the acquisition of assets on terms compliant with Sharia. In an ijara transaction, the financing party purchases property, equipment, or other asset desired by its client and then leases it to the client for a rental fee (calculated by reference to a benchmark such as LIBOR). Some ijara transactions (ijara wa-iktina'a) give the client/lessee the right (but not the obligation) to purchase the asset at or before the end of the lease term.

An ijara transaction differs from a conventional lease transaction in that certain obligations (for example, the obligation to maintain and insure the asset) cannot be shifted to the client/lessee. To mitigate the risks associated with ownership of the asset, the lender typically enters into a service agreement with the client/lessee under which the client/lessee agrees to maintain the asset (including obtaining insurance and conducting repairs).

For more information on ijara in the US, see Practice Notes:

For more information on ijara in the UK, see Practice notes: