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IJARA

LEASE-BASED SUKUK
The ijara contract is essentially a rental or lease contract: It establishes the right to use an asset for a fee. The basic idea ofijara sukuk is that the sukuk holders (investors) are the owners of the asset and are entitled to receive a return when that asset is leased.

In this scenario, the SGSBank receives the sukuk proceeds from the investors; in return, each investor gets a portion of ownership in the asset to be leased. The SGSBank buys the title of the asset from the same company that is going to lease the asset. In turn, the company pays a rental fee to the SGSBank.

The ijara contract process begins when a company that needs an asset but can’t afford to purchase it outright contracts with an SGSBank, which agrees to purchase the asset and rent it to the company for a fixed period of time.