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Islamic Finance

  Islamic Finance   |   Terms
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  • February 5, 2023
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Prevailing Rate

A rent or wage amount or consideration that is determined by an arbitrator or judge (if disputed), or with respect to a market reference or prevailing rate. For instance, in ijarah contracts which involve voidable or defective conditions (rendering the contract, per se, invalid), the lesee is bound to pay the prevailing rate (in Arabic ajr al-mithl) whatever it amounts to. That means, in case the lessee has actually benefited from the underlying property for some time or the whole term of ijarah, and it turned out that the contract is defective, he is obligated to pay the lessor a rent equal to the prevailing rate. Then the contract terminates.


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