An agreement in Islamic finance, involving a lease, allows one party to utilize an asset owned by another in exchange for periodic payments. This arrangement adheres to Sharia principles by providing access to the benefits of an asset without transferring ownership. For example, a company might use this structure to access machinery for its operations, paying rent to the asset owner for the duration of the lease. Upon completion of the agreed-upon term, the asset remains the property of the lessor.
This type of financing offers several benefits, including providing access to assets without requiring a significant capital outlay. It promotes economic activity while remaining compliant with religious guidelines that prohibit interest-based lending. Historically, it has served as a crucial instrument for facilitating trade and commerce within economies adhering to Islamic financial principles, providing a mechanism for both businesses and individuals to acquire needed assets without incurring debt considered impermissible.
