Ijara wa iqtina is an Islamic financing arrangement in which an institution buys an asset, leases it to the customer for an agreed term, then transfers ownership at the end through a sale or gift set out in a separate undertaking.
Where does the term Ijara wa iqtina come from?
The Arabic phrase literally means leasing and acquisition. Several pioneering Islamic banks used it to describe a lease that ends with the tenant owning the asset. More recent literature, including AAOIFI material, generally speaks of Ijara Muntahia Bittamleek for the same family of structures.
Two separate contracts: first the lease, then the transfer
The core rule forbids merging lease and sale into one conditional contract, which would create two sales in one and uncertainty about the transaction's true nature. The lease is signed first; the final transfer sits in an independent document executed only at maturity.
A one-sided promise that binds only one party
The transfer usually rests on a unilateral promise: the lessor undertakes to sell or gift the asset once every rental is paid, or the customer promises to buy. Standards accept a promise binding one party only, not a bilateral one amounting to an advance sale.
The savings account earmarked for gradual buy-out
In some historical variants, the customer also pays into an investment account that the bank manages on a Mudaraba basis. Profits accumulate there, and the resulting savings later settle the agreed acquisition price when the lease ends.
What the lessor carries as the real owner
During the lease, the institution stays the owner and bears ownership risks: structural defects, major maintenance and insurance of the asset. The tenant answers for normal use and its own negligence. Contractually shifting all these risks onto the customer would empty the lease of substance.
What happens if the leased asset is destroyed?
If the asset is lost through no fault of the tenant, the lease ends and the remaining rentals are no longer due. The lessor claims on its insurance, ideally Takaful. The customer cannot be made to pay for something that has disappeared.
Fixed rent or rent reset against a benchmark
Rent may be fixed for the whole term or reset periodically against a market benchmark, provided the formula is known at signing and each new amount is set before its period starts. Rentals already due cannot be raised retroactively.
Late payment and the charitable donation undertaking
Raising the rent to offset a delay would amount to charging riba on a debt. Contracts therefore contain the customer's undertaking to donate a sum to charity, sometimes alongside reimbursement of actual collection costs incurred by the lessor.
Ijarah followed by sale in Malaysian vehicle financing
In Malaysia, much Islamic vehicle financing uses Ijarah followed by sale, known as AITAB. The bank buys the car, leases it against monthly instalments, then sells it to the customer at the end under a separate sale contract.
What Bank Negara Malaysia expects from Ijarah products
Bank Negara Malaysia has issued a policy document on Ijarah. It sets out essential Sharia conditions and operational expectations: identifying the asset, lessor ownership before leasing, sharing maintenance costs and handling events that occur during the lease term.
How does it differ from conventional hire purchase?
In conventional hire purchase, the price combines principal and interest, and late charges keep accruing. Here, income comes from renting an asset genuinely owned, the lessor carries ownership risk, and the transfer flows from a separate promise.
Points to have the provider confirm before signing
Ask who pays for insurance and major maintenance, how the rent is reset, what happens on early settlement or theft, and what final acquisition price applies. Also request the reference of the Sharia board opinion that approved the product.
Specialist external source
Bank Negara Malaysia's pages set out the Ijarah framework applied to Malaysian Islamic banks, including its Sharia requirements and the conduct expected towards customers.