Ijara Thumma Bay

Ijara Thumma Bay (also known as AITAB — Al-Ijarah Thumma Al-Bay) is a two-phase Islamic financing structure commonly used for vehicle and equipment financing. In the first phase, an Islamic bank purchases the asset and leases it to the customer under an Ijarah (operating lease) contract for a defined period, during which the customer pays regular rental instalments. In the second phase, at the conclusion of the Ijarah period, a separate Bay (sale) contract is executed — either at a nominal price or based on a pre-agreed residual value — transferring ownership from the bank to the customer. The critical Shariah requirement is that the two contracts (Ijarah and Bay) must be separate and independent: the promise to sell at the end of the lease must not be included in the Ijarah contract itself, as this would conflate two different legal relationships and potentially invalidate both. AAOIFI Shariah Standard No. 9 on Ijarah and Ijarah Muntahia Bittamleek governs this structure — the latter being the more widely used variant where ownership transfer is built into the Ijarah structure via a promise. Ijara Thumma Bay is the predominant structure in Malaysian Islamic vehicle financing (replacing conventional hire purchase under the 1967 Hire Purchase Act). The IOF CORE_ISLAMIC_CONTRACTS rail supports AITAB with separate Ijarah and Bay contract generation, rental schedule management, residual value computation, and end-of-lease ownership transfer workflows.