Hire Purchase under Shirkatul Mielk (HPSM)
Hire Purchase under Shirkatul Milk (HPSM) is a special type of contract; it is the combination of three separate contracts: Shirkat; Ijarah & Sale.
- Shirkatul Mielk:Shirkat refers to partnership. Shirkatul Mielk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract can be defined as ‘Shirkatul Mielk’ contract.
- Ijarah:The term Ijarah has been derived from the Arabic Words ‘Ajr’ and ‘Ujrat’ which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an Asset.‘Ijarah’ is a contract between two parties, the Hiree and Hirer where the Hirer enjoys a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. In short, it is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.
- Sale:‘S‘Sale’ is a contract between a buyer and a seller through which the ownership of certain goods or asset is transferred by the seller to the buyer against agreed upon price paid or to be paid by the buyer.
Thus, in Hire Purchase under Shirkatul Mielk (HPSM) mode both the Bank and the Client shares equity as per agreed proportion to purchase an asset (land, building, machineries and transports etc.) with that equity money; own the same jointly; share the benefit as per agreement and bear the loss in proportion to their respective equity. Hire Purchase under Shirkatul Mielk (HPSM) Agreement has three stages:
- Purchase under joint ownership
- Hire and
- Sale and /or transfer of ownership to the other partner (Hirer)
The portion of the asset owned by the Bank is hired out to the Client (partner/hirer) for a fixed rent and for a fixed period. The Bank sells and transfers the ownership of its share in the asset to the Client (partner/hirer) against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement.
Features of Hire Purchase under Shirkatul Mielk (HPSM)
- The Islamic Shari’ah principle of investment under HPSM is “Musharaka Muta-naquasha” which means the rent shall be devisable as per equity involved, unpaid rent if any shall not be treated as equity and the asset shall be acquired on participation ownership.
- Possession of the asset shall be passed on to the client for use as per practicability.
- Bank shall retain the ownership till payment of equity portion of the Bank along with rental.
- The ownership of the asset shall gradually pass on to the client upon payment of Bank’s equity involved and on the reverse upon increase of client’s equity.
- Rent shall not be compounded in any case. i.e. no rent shall be charged on unpaid/outstanding rent. Incidence of rent shall be reduced proportionately with the reduction of equity of the Bank on payment of installment by the client.
- Since it is a kind of Musharaka, cash can be paid to the credit of clients account. However, the purpose, for which cash is disbursed must be ensured form the point of Banking.
- In case of need the equity portion may be increased or decreased by making lump sum payment by either side. Very often the client may require funds to run the equipment/machineries for short period as working capital which may be paid to the debit of respective HP-A/c if found feasible and covered by the value of assets.
Types of sale contract in Types of sale contract in Hire Purchase under Shirkatul Mielk:
- Hire Purchase under Shirkatul Mielk through gradual transfer (sale) of legal title/ ownership of the hired asset / property Hire Purchase under Shirkatul Mielk through transfer of legal title by gifts (for no consideration)
- Hire Purchase under Shirkatul Mielk through transfer of legal title (sale) at the end of hire period for a token consideration
- Hire Purchase under Shirkatul Mielk through transfer of legal title (sale) at the end of hire period for payment of a specified amount to the Hiree by the Hirer.
- Hire Purchase under Shirkatul Mielk through transfer of legal title (sale) prior to the end of the hire term for a price that is equivalent to the remaining Ijarah / rental installments
Categories of Proposal under HPSM
- HPSM-Real Estate
- HPSM-House Building
- HPSM-Consumer Investment Scheme