Ijarah is an essential contract in Islamic finance. It is one of the rental-based contracts in non-interest financial services. It chiefly contributes to economic growth, social upgrade, and infrastructural development of Nigeria, viz, leasing of affordable houses, financing the purchase of vehicles, and financing healthcare services, amongst others.

According to Dr. Basheer Oshodi, the Chief Executive of TrustArthur Limited, “Ijarah is a leasing financing tool used to recompense, replace, compensate, reward, and give returns.” This remark was made in an interview themed “Using Ijarah for Truck Financing”.

Extracted from his words, one of the categories of Ijarah is known as Ijarah Wa Iqtina, which means rent and acquisition, is a contract used by Islamic finance bank or financial institutions to lease an asset to a customer while the customer pays a stream of rentals on the asset with the desire to convey ownership of the asset to the customer at the end of the agreement, based on Islamic regulations. Hence, Ijarah Wa Iqtina can be used for Truck Finance. That is the acquisition of Truck vehicles and leasing same to a customer who is willing and capable of repaying its rental until the successful acquisition of the asset.

Dr. Basheer, who is one of the custodians of Islamic finance operations in Nigeria, advised that Ijarah Wa Iqtina is mostly suitable for a short-term tenure, for example, six (6) months tenure albeit renewable or reviewed by both parties, to include the maintenance of the paid or payable rentals. He, however, compared Ijarah with Murabaha for the same truck financing in a different circumstance. He mentioned that if the truck financing is indeed less than a year, but the customer seeks to acquire and pay the rentals through a financial institution, Murabaha (cost-plus or markup) contract can be used for the transaction. He, however, concluded that Ijarah Wa-Iqtina or diminishing Musharaka will be better for the Truck financing where that is not the case.

In his presentation on the overall risk of using Ijarah in financing assets. He noted that risk is one of the most important parts of any business, and strategies should be deployed to mitigate them.

On the risk of using Ijarah to finance trucks, he said repayment risk is a major risk. Other risks involved are legal, and the process of importing the truck. He believed proper cash flow is important to be in place, collateral, and Takaful (Insurance) in other to mitigate the risk and not affect repayments.

He concluded the interview by stating that Ijarah for asset financing works on a rental-based structure that forms an inalienable relationship between a lessor and lessee, which guarantees profits for the lessor and ease of acquisition of the asset to the lessee.