Islamic Bank Leasing

Islamic banks enter into two different types of lease agreements.

1) Ordinary Lease: lessor (bank) retains ownership during and after lease, there is no option for the lessee to purchase at the end of the leased period

2) Lease-Sale Agreements: The ordinary lease contract (with an additional option to buy the subject matter at the market rate during the lease term) is followed by a second sale contract under which ownership passes to the lessor. Unlike a hire-purchase agreement the lessor is not obliged to continue the lease agreement to the end of the term as it may be assigned, and therefore may not end in ownership passing to the original lessor. Also the purchase of the subject matter is at the discretion of the lessor, not part of the same agreement and therefore automatic as in a hire-purchase agreement.