What does the word "Ijara" mean?
Ijara (إجارة) is Arabic for "rent" or "lease." In Islamic finance it refers to a contract where:
- One party (mu'jir / lessor) owns an asset
- Another party (musta'jir / lessee) pays a fixed rent to use it
- The rent (ujrah) is fixed in advance and not indexed to interest
- Ownership stays with the lessor during the lease
Ijara is one of the oldest Islamic finance structures, documented across all four Sunni schools (Hanafi, Maliki, Shafi'i, Hanbali) and indirectly referenced in the Quran (Al-Qasas 28:26-27).
Ijara vs Ijara Muntahia Bittamleek (IMBT)
| Feature | Ijara (pure lease) | IMBT (lease-to-own) |
|---|---|---|
| Ownership transfer | Never | At final payment |
| End of contract | Asset returned | Asset becomes lessee's |
| Use for car financing | Rare | Standard |
| AAOIFI reference | Standard 9, clause 4 | Standard 9, clause 8 |
Bilen Utan Riba uses IMBT. When you make your 60th (or 48th, or 36th) payment, the car is yours. No additional fees, no residual buyout, no friction.
How Ijara works step by step
Step 1 - Asset identification. You choose the car. It must be permissible under Shariah (rules out cars whose primary purpose is haram - in practice this almost never excludes anything).
Step 2 - Purchase by lessor. The lessor (Bilen Utan Riba / Ribafri AB) buys the car from the dealer with its own capital. Critically, the purchase must happen before the lease contract is signed - otherwise the transaction becomes "bay'al-'inah" (a sham sale), which is haram.
Step 3 - Lease signing. We sign an Ijara contract: fixed rent, fixed term, asset description, maintenance terms, takaful (Islamic insurance), early settlement terms, purchase option / gift on final payment.
Step 4 - Use. You use the car as if it were yours. We do not interfere with daily use.
Step 5 - Ownership transfer. At the final payment, ownership transfers automatically. In Sweden this requires a Transportstyrelsen registration update, which we handle.
Conditions for a valid Ijara (Shariah requirements)
AAOIFI Shariah Standard No. 9 sets seven conditions:
- True ownership - lessor must genuinely own the asset, not just on paper
- Risk transfer - lessor bears destruction risk
- Fixed rent - rent must be known at contract signing
- Permissible asset - asset itself must be halal
- Permissible use - usage must be halal
- Separate purchase option - any purchase option must be a separate promise (wa'd), not part of the lease itself
- No interest-based late penalties - no riba-disguised charges
Violation of any of the above invalidates the contract under classical fiqh.
How Ijara differs from conventional leasing
| Aspect | Conventional lease | Ijara (Bilen Utan Riba) |
|---|---|---|
| Interest in pricing | Yes (effective rate baked in) | No (fixed profit margin) |
| Depreciation risk | Partly with customer (residual guarantee) | Entirely with lessor |
| Late fees | Interest + admin fee | Admin fee only, donated |
| Final payment | Residual buyout or return | Free ownership transfer |
| Insurance | Customer's responsibility | Lessor's responsibility (takaful) |
Common misconceptions
"Ijara is just leasing with an Arabic name." False. The structure looks similar on the surface but is fundamentally different in risk and pricing model. A "lease" branded as Ijara but priced using interest is not halal.
"It is the same as hire purchase." Close, but not quite. Hire purchase in most Western markets uses interest in pricing. Ijara uses a pre-determined profit margin without interest.
"There must be an official Islamic certification." There is no government-issued Islamic certification in Sweden. Validation is via a Shariah Supervisory Board of qualified scholars. Bilen Utan Riba's board has three independent scholars from three schools.
AAOIFI standards governing Ijara
- FAS 8 - Accounting for Ijarah
- FAS 32 - Accounting for Ijarah Muntahia Bittamleek
- Shariah Standard 9 - Shariah rules for Ijarah
- Shariah Standard 17 - Investment Sukuk al-Ijarah
Bilen Utan Riba complies with all four. Our contract template is reviewed against these standards.