Ijara

A lease or rental agreement used in Islamic finance. In the U.S. home financing context, a funding partner purchases the property and leases it to the buyer. Ownership transfers at the end of the lease term (Ijara wa Iqtina). IjaraCDC — a 501(c)(3) nonprofit — is the leading U.S.

Ijara provider, structuring financing through 100+ residential and 200+ commercial funding partners in all 50 states. Monthly payments go to Ijara (an Islamic organization) rather than a conventional bank. The structure avoids interest because payments are classified as rent rather than loan repayments. The lessor retains ownership risk, a key Shariah requirement.

Ijara is the Islamic lease: one party pays for the usufruct — the right to use — of an asset the other party owns, whether that asset is a house, a car, equipment, or a person's labor (ujrah). Its financing form, Ijara Muntahia Bittamleek ('lease ending in ownership,' governed by AAOIFI Shariah Standard No. 9), is one of the three main halal mortgage structures in America: a trust or the financier holds title, the customer leases the property with payments split between rent and an acquisition component, and title transfers at the end via promised gift or sale.

Ijara CDC runs this model in all 50 states; it also underlies most halal auto financing and a large share of Sukuk (lease certificates entitle holders to rental streams from real assets). The Shariah mechanics that distinguish a valid Ijara from a disguised loan: the lessor must actually own the asset and bear ownership risks — structural insurance, casualty loss, major maintenance stay with the lessor — while the lessee covers use-related costs; rent may be benchmarked to an index but the asset, term, and payment mechanics must be defined; and the ownership-transfer promise must be documented separately from the lease itself.

Consumer diligence therefore focuses on the risk allocation schedule: if the 'lessor' pushes every ownership risk onto you while collecting 'rent,' scholars would say you have an interest-bearing loan wearing a lease's clothes.