Ijārah Muntahiyah bi al-Tamlīk Structuring Framework
A lease contract in which the institution leases a tangible asset to the client for a defined rental schedule, accompanied by an independent promise (waʿd) to transfer ownership at the end of, or during, the lease term — by gift, sale or progressive transfer.
Shariah Basis
"The story of Mūsā ﷺ being hired by the righteous man — foundational evidence for hire."
"Ijārah and Ijārah Muntahiyah bi al-Tamlīk."
"Permissibility of lease-ending-with-ownership variants."
AAOIFI Shariah Standard No. 9 — Ijārah and Ijārah Muntahiyah bi al-Tamlīk
Parties
Institution — owns the asset and bears ownership-related risk.
Client — enjoys usufruct in return for rental.
Essential vs Prohibited
Essential Conditions
- Asset must be identified, existing, deliverable and Shariah-permissible
- Lessor retains ownership and ownership-related risk for the lease term
- Rentals are agreed for defined periods and may be fixed or floating per benchmark + cap
- Ownership transfer must be a separate, independent undertaking — not embedded in the lease
- Major maintenance is the lessor's responsibility; operational maintenance may be the lessee's
- Lease term, asset condition and usage rights are clearly documented
Prohibited Elements
- Lease of non-existent or non-deliverable assets
- Penalties accruing to lessor income on late payment (must go to charity)
- Embedded combination of lease + sale in one contract (must be separate)
- Insurance burden placed on lessee in conflict with ownership-risk principle
Transaction Flow
- 1
Asset Identification
Client identifies asset; institution evaluates Shariah-permissibility and economic viability.
- 2
Asset Acquisition
Institution acquires legal title from supplier.
- 3
Lease Execution
Ijārah contract signed for agreed term, rental schedule and use rights.
- 4
Independent Purchase Undertaking
Separate waʿd documenting future ownership transfer mechanism.
- 5
Rental Performance
Client pays rentals; institution maintains major-asset responsibilities.
- 6
Ownership Transfer
On completion (or earlier exercise), title transfers by gift / token sale per the waʿd.
Required Documentation
- Ijārah Master Agreement
- Asset Purchase Agreement (Institution ↔ Supplier)
- Independent Purchase Undertaking (waʿd)
- Service & Maintenance Agency (if applicable)
- Takāful Policy in lessor's name
- Shariah Adviser Approval Memorandum
Risk Controls
- Title and possession documented before lease commencement
- Major-maintenance obligation tracked and budgeted
- Floating rental cap to limit benchmark drift
- Independent purchase-undertaking documented as a separate instrument
- Annual Shariah audit and asset inspection
OSAS-IJM™ — Advisory Dossier
Open the corresponding OSAS™ advisory standard to access the approval memorandum template, transaction layout sheet and Shariah opinion structure for this contract.
Open OSAS-IJM™Part of the Onike Framework Ecosystem
OFIS™ · Onike Framework for Islamic Finance
Reviewed and Approved by Abdul-Azeez Onike Morufu — Registered Shariah Adviser, Securities Commission Malaysia
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