Ijarah bonds are securities which are transferable. They show the joint ownership of the holders in the underlying asset of the Ijarah bonds issuance.

Types of Ijarah Bonds

Ijarah bonds can be issued as normal Ijarah, Ijarah with option to sell, and Ijarah with ownership. (Notice: In the instructions for Ijarah bonds, they are divided into two types of Ijarah bonds; with the condition of selling option and Ijarah with the condition of ownership).
In all types of Ijarah bonds, the seller and the originator (lessee) can be united or different in terms of ownership.
Asset Ijarah can be in different following ways:

1. Normal Ijarah

In this case, the asset is leased to a lessee for a certain rent and a period of time, then at the maturity date, the issuer of the bonds takes over the asset and sells it in the market. Hence the issuer of the bonds takes a part of the rent as its own attorney's fee and pays the rest to the bondholders. The income of the bondholders is the monthly rent plus the difference between the purchase price of the asset and its sale price at the maturity of the Ijarah, which may be positive or negative. In terms of the Shariah Committee’s view, it is shariah-compliant and applicable.

2. Ijarah Subject to Selling Option

In this model, the asset is leased to the lessee for a certain rent and a period of time. In the Ijarah contract, it is stipulated that at maturity, the issuer has the right to sell the asset to the lessee at a certain price. At maturity, the bond issuer either sells the asset to the lessee according to the selling option, or takes it over and sells it in the market.
In this case, the bond issuer takes a part of the rent as its own attorney's fee and pays the rest to the bondholders. The income of bondholders is monthly rent plus the difference between the asset's purchase price and its sale price at the maturity of the Ijarah, which is predictable. In terms of the Shariah Committee’s view, it is shariah-compliant and applicable.

3. Ijarah Subject to Ownership

In this case, the asset is leased to the lessee for a certain rent and a period of time. In the Ijarah contract, it is stipulated that the issuer of the bonds gives the leased asset to the lessee at the maturity date as his own asset. In this case, the issuer of the bonds takes a part of the rents as its own attorney's fee and pays the rest to the bondholders. The income of the bondholders in this case is also the monthly rent, which is usually higher than the type one and two, which means that the value of the asset itself is also included in the rent.
(Notice: In the instructions for the issuance of Ijarah bonds, only Ijarah with the condition of selling option and ownership is stipulated).

Rental Rate

The rental rate can be fixed or floating. In the Ijarah bonds with a floating rate, several consecutive Ijarah contracts are used, which are stipulated in the first Ijarah contract. At the time of concluding the contract, the first rental is determined. Moreover, the first rental is determined when the bonds are issued. In the Ijarah contract, it is stipulated that the parties are committed to renewing the contract at the beginning of each period until the maturity of the bonds. The new rental rate can be determined based on a floating rate (such as the inflation rate).

The Subject of Ijarah Bonds

. The asset subject to the issuance of Ijarah bonds shall be legally and conventionally capable of being rented.
. If the subject of Ijarah is a share, you must:
. The originator’s common shares shall be determined from a publicly traded company's shares.
. In a company whose shares are leased, the ratio of fixed assets to the net value of the company's assets shall be more than 60%. These calculations are based on the financial statement of the main company, and in the case of companies that have consolidated financial statements, they are the basis of the calculation. To calculate the value of fixed assets, the daily value can be used as the basis. The company must be committed to maintain a ratio of 60% of fixed assets to the net value of assets during the issuance of Ijarah bonds. ¬

Proviso: Companies whose major part of assets (more than 60%) according to the consolidated financial statements are long-term investments in the company's shares, can calculate the share in the fixed assets of the subsidiary companies in proportion to the share in the company's shares and proportionally determine the amount and submit the request to the Shariah Committee.

. The amount of issuance of Ijarah bonds on a share cannot be more than the amount of fixed assets of the company (issuance basis) if there is a debt for part of the fixed assets (the amount of fixed assets is greater than net assets). In order to comply with financial discipline, in In this case, the company can issue bonds up to the amount of the difference between fixed assets and liabilities.

. The rights and interests of the shares during the lease period shall be determined and assigned under the condition of ownership. It can also be a part of the benefits in the form of a condition in the contract belonging to the originator (such as the government). Buyers of bonds can transfer the interests of shares, including dividends, use of preemptive rights and the like, to the share seller for a certain period and amount. This transfer can be done in the form of contracts such as conveyance, exchange or Bey’a (sale).

. The terms of termination shall be provided in the Ijarah contract under the condition of owning shares in case of non-fulfillment of the obligations of the originator (government). In this case, the Ijarah contract is terminated and the shares subject to the lease can be sold and the funds can be given to the bondholders.

. If the shares that are the subject of Ijarah bonds belong to a company that owns several companies, the buyers of the bonds must be allowed to buy and sell the shares of the owned companies. When the company's shares are the basis for the issuance of Ijarah bonds, if the said company intends to invest in the shares of other companies, the condition of representation in the purchase and sale of shares on behalf of by the owners of the Ijarah bonds shall be included in the Ijarah contract.

. If a company has already issued Ijarah bonds on a part of its assets, that part of the assets is removed from the total fixed assets and calculations are made on the remaining value. This matter can be applied where Ijarah bonds are first issued on the company's shares, then the company directly requests the issuance of Ijarah bonds on fixed assets.

. A mechanism shall be considered for a company issuing Ijarah bonds as basis part of its assets that cannot sell those assets without the permission of the bondholders.

Redemption of Bonds

The originator can redeem the bonds before the maturity, in this case the Ijarah contract gets terminated.
If the redemption is done by a company that is not under the ownership of the originator, after buying all the Ijarah bonds, the company that buys the bonds will make a deal with the originator to own the asset and terminate the Ijarah contract.

Foreign Currency Ijarah Bonds

Ijarah bonds can be issued in foreign currency. In this way, investors become the owner of a certain asset by paying a certain amount of foreign currency or its Rial equivalent (at the daily rate of the free market) and buying Ijarah bonds jointly, then they provide that asset in the form of Ijarah to the originator under the condition of acquiring foreign currency. According to the contract, the rent is paid to the investors in the form of foreign currency or its Rial equivalent (at the daily rate of the free market) on the due dates.

Exchanging for Shares

Ijarah bonds can be converted or exchanged for shares. (Notice: convertible bonds can be converted into shares of the originator company. Exchangeable bonds can be converted into shares of the subsidiary company).

Sale of Bonds in cash or in installments

If the owners and the sellers are the same, the Ijarah bonds can be traded with discount or increase, otherwise (if the owners and the sellers are different), the intermediary company, on behalf of the bondholders, compromises with the originator, so the originator can use the funds gained through the Ijarah bonds to purchase the leased asset. If he had a surplus, he can own it, and if he had a deficit, he shall compensate from his own resources.