In the Islamic banking lexicon, “Ijara” means to rent something—it may be the services of an individual for which the latter is paid wages or it may refer to the transfer of right to use and enjoy the profits and/or benefits of some property or asset(s) to another individual in return for a specified amount of rent. Ijara contracts in recent times have come to be widely regarded as having immense potential to aid the short-term needs of individuals and entrepreneurs. The various types of ijara contracts are flexible and are favored by many entrepreneurs and business managers who wish to enjoy the freedom of being able to upgrade manufacturing equipment as and when technological advances demand such steps.

There are four main forms of ijara contracts: the simple ijara, the Ijara-thumma-al-Bay ,  ijara with Musharaka or Mudaraba, and sale-and-lease back. These ijara contracts vary in their working principles but they are all rooted in the guidelines laid down by Sharia laws.

Truly the simplest of all ijara contracts, simple ijara, is a form of operating lease agreement where the owner of the property or the asset continues to exercise ownership rights, bears the maintenance costs of the assets, and also bears the risks incurring from its use. It is a short-term contract where the lessee can break free from the arrangement any time he wishes to, albeit after furnishing a prior notice. The entire cost of the equipment or the asset is not amortized during the initial period of the agreement.

In its most basic form, the operating lease contract involves a bank that leases an asset or some property to some individual or some business entity and in turn receives some pre-determined amount of rent at intervals specified by the contract. According to Sharia scholars and Islamic banking analysts, this is the purest of all forms of ijara contracts because it is closest to the ideals set down by the classical form of the ijara agreement.

There can be other subtle variations of the simple ijara as well. Simple ijara is mostly used when the assets involved are expensive and subject to quick technological upgrades, like aircrafts, ships, heavy-duty industrial and agricultural equipment & machinery. In real estate transactions it is possible to have triple net leases where the cost of the taxes, insurance and maintenance is passed along to the tenant.

This is one of the most commonly entered-into of all ijara contracts and is preferred by businesses who seek finances to fund their buys of equipment, machinery, and some forms of fixed assets such as land and buildings. These form of ijara contract shares many points of similarity with the conventional form of the financial lease agreement.

Here the lessee has the option to buy the asset or the piece of property for which he had been paying a specified amount of rent, at the end of the contractual period, at a pre-fixed price. This type of contract presents a convenient situation for both parties and hence is one of the most popular of all ijara contracts. Although the bank basically funds the buy of the asset or the property, it still gets to earn some money out of this contract, by way of the rent. The lessee, on the other hand, is not only able to use the asset without having to pay its full price all at once or bear the risks during the leasing period, but also can become its owner after the contract terminates.