CIFE Murabaha & Ijara 2

Question 1

What is 'Ijara' in Islamic finance?

Accepted Answer

A leasing contract where the bank (lessor) purchases an asset and leases it to the client (lessee) for agreed periodic rental payments, retaining ownership risk

Answer

Ijara is an Islamic lease where the financier buys and owns the asset, leasing its usufruct (beneficial use) to the client for defined rental payments; the lessor retains title and bears major ownership risks.

Question 2

What is 'Ijara wa Iqtina' (Ijara Muntahia Bittamleek)?

Accepted Answer

A lease ending in ownership, where the client has an option or commitment to purchase the asset at the end of the lease term for a nominal or agreed price

Answer

Ijara Muntahia Bittamleek (lease-to-own) combines a lease with a separate promise to transfer ownership at the end of the term, making it a common Islamic alternative to conventional mortgage finance.

Question 3

In an Ijara contract, who is responsible for major maintenance and insurance of the leased asset?

Accepted Answer

The lessor (bank/financier) bears major maintenance and insurance as it is the legal owner

Answer

Since the lessor retains legal ownership of the asset in Ijara, it is responsible for major structural maintenance and insurance, as these are risks and costs of ownership, not of use.

Question 4

How is the rental amount typically structured in an Ijara for a variable-rate period?

Accepted Answer

Rental payments can be tied to a benchmark rate (e.g., LIBOR/SOFR or central bank rate) and revised at agreed intervals, provided the future amounts are determinable at reset dates

Answer

Ijara rentals may be variable if linked to a transparent benchmark with amounts determinable at each reset date; this is permissible because the rental for each period is known in advance at the time of revision.

Question 5

What critical Shariah condition distinguishes a valid Ijara from a disguised loan?

Accepted Answer

The lessor must genuinely own the asset and bear the risks of ownership throughout the lease term

Answer

Genuine asset ownership and risk-bearing by the lessor is the critical Shariah requirement that distinguishes Ijara from a disguised loan; if the lessor bears no real risk, the structure becomes a Riba transaction in form.

CIFE Islamic Finance Practice Test

CIFE Islamic Finance Practice Test

CIFE Murabaha & Ijara 2