In Islamic banking, a specially designed form of a loan agreement. One partner cedes an asset to the other for use and enjoyment, at a specified lease rate and for a fixed period of time. The owner of the asset – the bank – bears all the risks associated with ownership. – The asset can now be sold at a contractually negotiated market price, which is effectively the sale of the ijara contract. – However, the contract may also take the form of a lease-purchase agreement. In this case, the current lease payments are used to pay off the asset after agreement has been reached on the value and useful life (economic life) of the asset, which is initially only on loan. – See inventory credit, Istisna, Mudaraba, Murabaha, Musharaka, Salam, Sukuk.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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