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The Ijara Model
The Ijara Model, also known as the lease-to-own model, provides clients with an alternative way to finance their commercial or residential properties by allowing them to create a rent-to-own agreement in which the client becomes a renter of the property, therefore abiding by the Sharia principles. Under this model, the financier is the one who purchases the property and the client/buyer rents the property. A portion of each rent payment made goes towards the ownership of that property, while the remaining portion covers all other expenses associated with the property such as taxes, insurance and so forth. It is upon completion of repayment that the property gets registered in the client/buyer’s name.
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As a shariah-compliant financing organization, PPG Islamic Financing strives to deliver fair and transparent lending solutions that cohere with our clients’ ethical and moral beliefs. Our financing programs are free of riba (interest), equitable and are a halal (or permissible) way for faith-conscious Muslims and non-Muslims to fund a residential or commercial property.
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Our Islamic Financing specialists are happy to answer any questions and guide you in your shariah-compliant financing journey.
Islamic Financing is governed by a set of rules known as Fiqh al-muamalat, that prohibit usury, speculation as well as the borrowing of money at interest. The reasons these principles were created, specifically in relation to riba-free financing, is because in Islam leding an individual money is meant to be a noble and charitable act. Therefore, by giving the individual a loan, you are helping someone less fortunate and who may be experiencing hardship. Since the loan is seen as a good deed, the lender should only expect the amount lent and not use this opportunity to generate a profit. However, financial institutions need to generate profits in order to continue assisting individuals with large purchases. This is where the Islamic Financing concept comes into play. It offers people a culturally distinct form of ethical financing where business can generate a profit and individuals are protected from exploitation.
As opposed to the traditional lender/borrower relationship in which the borrower obtains funding from the bank and is required to pay interest, an ijara loan creates a lessor/lessee relationship. This allows the client to pay rent on the property and not on the money borrowed. Since the rent payments go to the Trust, the client does not pay interest. Additionally, ijara loans are structured as an investment where both parties share in the profits and losses.
- Helps build healthy communities.
- It is an ethical and equitable solution to financing.
- It assists in financial inclusion, while bringing into the economy a larger pool of saving.
- Reduces the impact of harmful products and practices.
- Promotes the principle of financial justice
- Encourages stability in investments.
- Accelerates economic development.
- It is not limited to followers of any one faith; in fact, it appeals to all people who are interested in a more transparent and ethical system of finance as well.
- Islamic financing is an ideal solution for Muslim and non-Muslim families looking to buy a home in accordance with their values.
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