Ijaara (leasing)

Ijara is a form of leasing:
under an IJARA, the financier will purchase an asset and then lease it to the other party of or a fixed term at an agreed rent which includes a profit margin on a variable rate. The financier remains the owner of the item during the term, holding the asset as security. The parties agree to transfer ownership from the financier to the “customer” for an agreed price at the end of the term. As the rent paid during the term is usually applied in reduction of the final price, that price is often nominal. The Ijara is the most prevalent form of housing finance as it allows the financier to charge a variable rate of return (as opposed to a Murabaha which is fixed).