Ijarah meaning

This Practice Note reviews a range of Islamic or Shari’ah‑compliant structures commonly used in project financings and the documentation associated with them. It proceeds on the basis that readers have a working grasp of the key principles of Islamic finance; for detail, see Practice Notes: Key principles of Islamic finance and Sources of Shari’ah. It likewise assumes familiarity with standard conventional project finance frameworks and participants; for these, see Practice Notes: Introduction to project finance, Project finance—key project parties, Project finance—key finance parties, Types of projects and Project finance—meaning of completion and its effect. The structures outlined are typically more intricate, involve additional moving parts and require parties to enter into a greater number of documents than their conventional counterparts. Even so, they are established financing forms, well recognised by most financial institutions and law firms in the market. Greenfield projects—Istisna’a-Ijarah Typically, greenfield projects—i.e. schemes on unused land where there is no need to alter or demolish existing structures—that feature an extended construction or development period followed by...

A Shari’ah compliant leasing agreement Under Shari’ah, leasing is arranged as an ijarah, which may resemble either an operating lease or a finance lease. The ijarah structure determines how the asset is treated at the close of the rental term and how value is recovered. Operating lease: the asset is handed back to the lessor when the rental period ends (comparable to hiring a car). Finance lease: the total rent payable equals at least 100% of the asset’s full market value and, at expiry, title may transfer to the lessee. For further detail on these lease types, see Practice Notes: Operating leases and Finance leases. In practical terms, arranging a Shari’ah compliant lease involves only limited departures from a conventional lease. As ijarah is used chiefly for Shari’ah compliant asset finance and residential mortgages, structures typically envisage the asset passing to the lessee on maturity, and this Practice Note primarily addresses that model. This Practice Note also proceeds on the...

Islamic real estate finance Islamic real estate finance is gaining increasing traction and has become firmly embedded in the UK and global property arenas. Worldwide Islamic finance assets are assessed at over US$4.5tn, with the sector forecast to keep expanding to US$6.7trn by 2027. This growth has been, and is expected to remain, driven by worldwide economic developments, evolving demographic trends, higher income levels and rising investment from the Gulf Co-operation Council, itself spurred by strong returns across the Halal, infrastructure and Sukuk segments. Consequently, the UK is well positioned to continue capturing the advantages of this consistently expanding market. At the same time, conventional financial institutions are increasingly turning to Islamic finance to complement traditional equity and debt solutions. The purpose of this Practice Note is to consider in detail the principal Islamic real estate finance structures set out below: Ijarah Diminishing Musharaka Commodity Murabaha Wakala A review of the documentation required for each of these structures will be...