Financial Lease
A lease is classified as a finance lease if it transfers the ownership of assets to the lessee. The example of finance lease may be the car lease in which lessee makes periodic payments to the lessor and after a specific period of time say after five years, the possession of car is transferred to the lessee.
Operating Lease:
In operating lease, the asset is provided to the lessee by the lessor to use that for specific period of time. At the end of that period, the asset is returned by the lessee to the lessor and it remains the property of lessor.
Normally, the lease term is short compared to the useful life of the asset or piece of equipment being leased. For example, an aircraft which has an economic life of 25 years may be leased to an airline for 5 years on an operating lease.
Ijarah:
Ijarah is an Islamic form of lease in which the lessor gives the right to the lessee to use the asset for specific period of time against payment of lease rentals. At the end of the lease term, the lessor may transfer the ownership of asset to the lessee.
All type of assets raging from home appliances to heavy machinery to commercial buildings can be leased under finance/operating lease and Ijarah.
