What is Ijarah in Islamic banking ? Meaning, Definition, and Example

Ijarah is an important concept in Islamic banking that refers to a leasing or rental arrangement where the ownership of an asset remains with the lessor, but the lessee gets the right to use the asset for a specified period in exchange for periodic payments.

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In Ijarah finance, the lessor (usually a bank or financial institution) provides the asset to the lessee for a fixed term, while retaining ownership. Ijarah meaning in Islamic finance is essentially the transfer of the usufruct (benefit) of an asset without transferring ownership.

The Ijarah system is used to comply with Islamic principles by avoiding interest (riba) and ensuring that the transaction is based on tangible assets. What is Ijarah? It is a Shariah-compliant alternative to conventional leasing and financing methods.

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