Islamic equipment finance lets a business obtain machinery, vehicles or IT hardware through an Ijara lease or a Murabaha cost-plus resale, with the financier genuinely owning the asset before leasing it out or selling it on to the company.
Two routes to acquiring equipment
With Murabaha, the company becomes owner on resale and pays a marked-up price in several instalments. With Ijara, it uses the equipment against rent while the financier remains owner, and any final purchase happens only at the end of the contract.
Which contract for which type of equipment?
Murabaha suits items with a short life or easy resale value, such as tools or office furniture. Ijara fits costly, long-lasting assets better, like construction plant, production lines or commercial vehicles, whose wear is spread across several years of use.
Ordering from the supplier and taking delivery
The client picks the equipment and often negotiates specifications, but the financier is the buyer. It may appoint the client as agent to receive delivery, yet the invoice and the transfer of title must still be issued in the financier's name.
Who pays for servicing and major repairs?
Under Ijara, routine maintenance linked to use falls on the lessee, while structural repairs needed to keep the asset usable belong to the owner. The contract may appoint the client as agent for such work, with the cost in principle borne by the lessor.
Total breakdown, loss and suspended rent
If the machine is destroyed or unusable through no fault of the lessee, rent stops being due for that period, because it pays for a real benefit. This is a clear difference from conventional finance leases, where instalments often keep running regardless.
Insuring the equipment through Takaful
Cover for the leased asset is in principle the owner's responsibility, and the cost can be built into the rent. Using Takaful rather than commercial insurance is generally recommended wherever a compatible offer is available in the market.
Rent reviews over a long term
For a five or seven year contract, rent can be reviewed periodically according to a formula known at signing. Each amount must be set before the period it covers begins, so that the consideration never carries excessive uncertainty.
Selling your machines and leasing them back
A company that already owns equipment can sell it to the financier and lease it back to free up cash. This sale-and-leaseback is accepted if the sale is genuine and at a coherent price, rather than a thin cover for a loan.
Residual value and final transfer of title
At the end of an Ijara, title passes to the lessee by sale at a token price, sale at market value or gift, under a unilateral undertaking separate from the lease. The transfer cannot be built automatically into the lease contract itself.
Second-hand and imported equipment
Used equipment can be financed if it is identified and inspected, with its condition described in the contract. For imported items, the financier must carry the transport risk or clearly state the moment when ownership and risk pass to it.
Settling an equipment facility early
Under Murabaha the full price is owed, but many financiers grant a voluntary rebate on early payment without any contractual commitment. Under Ijara, early purchase of the asset is negotiated at the price agreed at that time, as set out in the undertaking.
Clauses to reread before you sign
Check who holds title at each stage, how maintenance and insurance are split, what happens to rent during a breakdown, the final buyout terms and the approval of the financier's Sharia board, which vouches for the product's compliance.
Specialist external source
The Islamic capital market section of the Securities Commission Malaysia presents its Shariah Advisory Council resolutions and its guidelines on sukuk backed by tangible assets.