Leasing (Ijarah) is the most common type of business undertaken by Modarabas. Ijarah is akin to leasing, more accurately operating lease. It is defined as the transfer of usufruct of an asset by a lessor to a lessee in exchange for rent. The ownership of the asset remains with the lessor throughout the tenor of the lease and at the end of the lease, the lessee may purchase the asset at a mutually agreed price.

Leasing is carried out either through companies established under the Companies Ordinance or by Modarabas established under Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980. Leasing enjoys the privilege of being regarded as an Islamic mode of financing and conforms to Islamic principles. Accordingly Modarabas, in particular, Leasing Modarabas, carry on the business of leasing. Their documentation is reviewed and approved by the Religious Board which confirms the compliance of the transactions and the documentation with Islamic principles.

Modaraba generally treat leases as operating lease and their documentation is prepared accordingly. However, most leasing transactions done by leasing companies are in the form of finance lease and the documentation and accounting treatment is accordingly in compliance with IAS 17.

Regulatory Framework
The industry is monitored and regulated by Securities & Exchange Commission of Pakistan. Registrar Modaraba is responsible for monitoring and regulating leasing modarabas, within the overall organizational set-up of SECP.

Leasing Companies and Modarabas have separate regulatory frameworks. However, there are a large number of common ground rules, particularly in respect of the conduct of leasing business. The rules and regulations applicable to leasing are enumerated in the following:

•Companies Ordinance, 1984
•Income Tax Ordinance, 1979
•Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980
•Prudential Regulations for Modarabas as revised by Securities & Exchange Commission of Pakistan in   year 2000.