A conventional lease is a commutative contract between a lessor and lessee whereby an asset (property) is placed at the disposal of the latter for an agreed period of time in return for a series of payments to be made by the latter to the former. The lessor retains ownership of the asset while the lessee only utilizes the asset over the agreed period (in other words, the lessee only owns and enjoys the usufruct of the leased asset).
Ijarah (Islamic lease) has the same meaning, but with different risk-reward profile and contractual elements as shown in the table below:
| Aspect | Conventional leasing | Islamic leasing (Ijarah) |
| Leased asset | The leased asset is not owned by the leasing bank. | The leased asset is owned by the leasing bank. |
| Liability for losses | The bank cannot be held liable for any losses that might be incurred on the asset. | The bank bears the risk of loss if it is not caused by negligence of the lessee. |
| Rent payment | Rent is charged and billed prior to delivery of the leased asset. | No rent (ujrah) can be charged and billed prior to delivery of the leased asset. |
| Termination | The agreement gives the leasing bank a unilateral right to terminate it at its own discretion. | Ijarah is a binding contract and hence neither party can terminate it without mutual consent unless the contract is breached by either party. |
| Late payment | Penalty on late payment is charged. | Penalty on late payment is considered impermissible and hence it cannot be charged. |
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