Ijara Wa Iqtina contract in 2024, also known as lease-to-own, is an Islamic financial contract where an asset is leased to a lessee for a predefined period, with the option or commitment to purchase the asset at the end of the lease term, ensuring transactions adhere to Shariah principles by avoiding interest-based financing.
Ijara Wa Iqtina contract involves the lessor (financier) purchasing an asset and leasing it to the lessee (client), with lease payments made over the term that contribute towards the asset's purchase, effectively allowing the lessee to acquire ownership in a manner compliant with Islamic finance.
The lease agreement under Ijara Wa Iqtina specifies the lease term, rental payments, and the asset's purchase option at the end, making it a transparent and ethical alternative to conventional financing methods.
Throughout the lease term, the lessor retains ownership and is responsible for major maintenance and insurance of the asset, aligning with Islamic principles that prohibit the lessee from bearing the cost of an asset they do not own.
At the end of the lease term, the lessee has the option to purchase the asset for a predetermined price, which may be the residual value or a nominal amount, facilitating a smooth transition of ownership in a Shariah-compliant manner.
Ijara Wa Iqtina is widely used for the financing of real estate, vehicles, and equipment, offering a viable Islamic financing solution that meets the needs of modern economies while adhering to traditional Islamic values.
This contract allows for the structuring of payments in a way that reflects the asset's use and eventual ownership, providing financial flexibility and predictability for both the lessor and lessee.
Ijara Wa Iqtina contract in 2024, by separating the lease agreement from the purchase option, this type of islamic contract ensures that all financial transactions remain transparent, ethical, and in full compliance with Islamic law, contributing to the broader Islamic financial system's integrity and growth.