Ijara

Ijara is an Arabic term meaning "to give something on rent" or "providing services and goods temporarily for a wage." In Islamic finance, it describes a contract where one party (the lessor) purchases an asset and leases it to another party (the lessee) in exchange for periodic rental payments. Because the lessor retains ownership of the asset, the arrangement avoids the payment of interest (riba), making it permissible under Sharia law.\n\nThere are several forms of Ijara. A standard Ijara covers the lease of an existing asset. A forward Ijara (sometimes called Ijara Mawsoofa fi al-Dhimma) covers an asset not yet in existence at the time the contract is signed, which is commonly used in construction and project finance. A variant known as Ijara wa Iqtina or Ijara Muntahia Bittamleek adds an option or promise for the lessee to acquire ownership at the end of the lease period - this is the structure most commonly used in Sharia-compliant home finance products across the GCC.\n\nIjara contracts in the Gulf are typically governed or validated by Sharia supervisory boards and, where applicable, standards set by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). In the UAE, Islamic finance products offered by banks are subject to oversight by the Central Bank of the UAE. In Saudi Arabia, Islamic banking conduct falls under the Saudi Central Bank (SAMA). Prospective users should verify the specific Sharia certification and regulatory licence of any institution offering an Ijara product.

For English-speaking expats in the GCC, Ijara is most commonly encountered as the underlying structure of Islamic mortgages and vehicle or equipment finance. Rather than a bank lending money at interest, the bank buys the property or asset and leases it to the expat customer. The customer pays rent, and - if an ownership transfer clause is included - gradually acquires the asset over time. This makes Ijara the functional equivalent of a conventional mortgage or hire-purchase agreement, structured to be Sharia-compliant.\n\nExpats should read Ijara agreements carefully, particularly around who bears maintenance obligations, what happens on early termination, and how rental amounts are reviewed during the lease term. These terms vary between institutions and can affect the total cost of financing. Always review the full contract terms and, if needed, seek independent legal or financial advice before signing. Relevant regulators to check for an institution's licence include the Central Bank of the UAE, SAMA in Saudi Arabia, the Qatar Central Bank (QCB), the Central Bank of Bahrain (CBB), the Central Bank of Kuwait (CBK), and the Central Bank of Oman (CBO).