An ijara is a lease of the PPP project asset, granted by the Islamic funder to the SPV. It is possible because under the istina’a, the Islamic funder has received title to the PPP project asset.
An ijara is effective during the Operations Phase of the project. Under the arrangement, the SPV will lease the PPP project asset from the Islamic funder and will make lease payments to the Islamic funder for this purpose. The amount of the lease payments is calculated by aggregating the total cost of the debt provided by the Islamic funder plus the cost of any margin, pro-rating this on a monthly basis throughout the duration of the PPP project’s Operations Phase.
The ijara is therefore the only finance product that delivers a fixed and determined income to the Islamic funder. It is for this reason that the istina’a and the ijara are used together. The istina’a provides the Islamic funder with the PPP project asset, and the ijara ensures that the PPP project asset can, through the operation of the lease, generate a revenue (repayment of the loan amount) to the Islamic funders.