Jurisdiction(s):
United Kingdom

Key definition

Ijarah definition

What does Ijarah mean? Ijarah is a Sharia‑compliant leasing arrangement: a financier (lessor) acquires an asset and leases it to a customer (lessee) for rent, with ownership remaining with the financier and only the right to use (usufruct) passing to the lessee. The term is not defined in UK or Irish legislation or case law; it is an Islamic finance concept implemented through conventional lease documentation (often English law‑governed) alongside Shariah approval. Key legal features include: asset‑backing; rent payable for use rather than interest; lessor retention of title and ownership risk; and allocation of maintenance and insurance in a manner consistent with Shariah (commonly via...

Ijarah (Shari’ah‑compliant leasing) for asset finance and residential mortgages: structure, documentation, rent mechanics, undertakings, maintenance and insurance allocation, prepayment, and key legal, tax and regulatory risks

Published by a LexisNexis Banking & Finance expert

Practice notes

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 basis that the asset exists when the funding is put in place; a different arrangement, an istisna’a, is used where finance is required before delivery, but that is not covered here...

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Web page updated on 21/05/2026

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