Ijara (Leasing)
Finance model where the bank buys an asset and leases it to the client.
Detailed Description
Ijara (Leasing)
What is the main purpose of Ijara in Islamic finance?
Ijara serves as a leasing mechanism that allows one party to lease an asset to another while complying with Islamic law, avoiding interest payments.
What are the two main types of Ijara?
The two main types of Ijara are Ijara Muntahia Bittamleek, which includes an option to purchase the asset, and Ijara Operating, which does not.
How does Ijara differ from conventional leasing?
Ijara differs from conventional leasing primarily in that it does not involve interest payments and must comply with Islamic principles.
What are some benefits of Ijara for lessees?
Ijara provides access to assets without large upfront costs, improves cash flow management, and allows businesses to preserve working capital.
What risks are associated with Ijara transactions?
Risks include asset depreciation, potential financial losses if rental payments are missed, legal disputes over contract terms, and market fluctuations affecting demand.