Economic term for leasing, typically offered through Islamic banks with long-term credit facilities for capital equipment purchases. May involve purchase or an installment sale, where a customer eventually acquires ownership of the equipment. Longer-term participatory finance may also be provided by the Islamic bank becoming a partner in business, according to the principle of mudarabah (profit sharing). The bank may provide all of the funding, acting as financier, with an active manager providing entrepreneurial skills and management. Funding may be provided to either a preexisting company or a new company. One of the most active fields of Islamic banking activity. The leasing arrangement circumvents the charging of interest, which, according to many scholars, is forbidden in Islam.
Subjects: Economics — Islam.