Ijarah (Finance and Operating Leases) In Islamic Finance

UAE Laws and Islamic Finance

According to Norton Rose, Ijarah involves the act of leasing in which the owner of the asset transfers its manfa’a or usufruct to another person to use for an agreed period and for an agreed rent.

The ownership of the leased equipment remains in the hand of the lessor.  Under the Sharia’h concept of leasing finance,  the bank purchases the asset required by the customer and then leases the asset to the customer for a given period.  A master agreement may be drawn up covering a number of Ijarah transactions between the bank and the customer and setting out the general terms and conditions of agreement between the two parties.  In this case, there may either be a separate lease contract for each transaction in a specific written document signed by the two parties or alternatively, the two parties may exchange notices of offer and acceptance by referring to the…

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