Economics · Islamic Finance
A company is evaluating alternatives to issuing conventional loan notes. They are considering Sukuk or an Ijara arrangement to finance the acquisition of a new specialized manufacturing plant. In comparing these two Islamic finance sources, which of the following statements is TRUE?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Unlike conventional debt, Sukuk and Ijara do not affect the company's capital gearing ratio because they are considered 'off-balance sheet'.
- 2In an Ijara contract, the lessor is responsible for all major maintenance and insurance of the asset throughout the lease term.✓
- 3Both Sukuk and Ijara require an underlying tangible asset, but only Sukuk holders take on the risks and rewards of ownership of that asset.
- 4Sukuk holders are effectively creditors who receive interest payments, whereas Ijara is a profit-sharing joint venture.
Correct answer
In an Ijara contract, the lessor is responsible for all major maintenance and insurance of the asset throughout the lease term.
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