Ijarah wa-iqtina

In Islamic Shariah, it is allowed that instead of sale, the lessor signs a separate promise to gift the leased asset to the lessee at the end of the lease period, subject to his payment of all amounts of rent. This arrangement is called 'Ijarah wa iqtina. It has been allowed by a large number of contemporary scholars and is widely acted upon by the Islamic banks and financial institutions. The validity of this arrangement is subject to two basic conditions:

1. a) The agreement of Ijarah itself should not be subjected to signing this promise of sale or gift but the promise should be recorded in a separate document.
2. b) The promise should be unilateral and binding on the promisor only. It should not be a bilateral promise binding on both parties because in this case it will be a full contract effected to a future date, which is not allowed in the case of sale or gift.

Source: Dr. Muhammad Imran Ashraf Usmani, Meezan Bank’s Guide to Islamic Banking.