Hire Purchase / Ijara

Hire Purchase is a special type of business transaction which is also traditionally practiced for procurement of goods, mainly, are of fixed nature. Here purchaser purchases the asset from the seller by paying the price gradually or in lump sum after the rent period and pay rent for the asset up until making the full payment.

In this type of contract the hiree, here the Bank, has the full ownership of the goods. The ownership is only transferred to the hirer, here the client, after the price of the goods is fully paid to the Bank. That means ownership has to be manually transferred in this type of contract. Up until ownership of the asset is transferred the client has to pay a fixed rental to the Bank according to the schedule specified in the contract.

Important features

01.

The Bank purchases goods for the client taking an agreed upon margin and a risk weighted fund.

02.

The full ownership of the goods stays with the Bank throughout the contract period.

03.

The ownership is usually transferred to the client after the rental period.

04.

The client has to pay a fixed rental throughout the rental period.

05.

As the ownership of the goods is with the bank thus the risk of damage of goods is also with the Bank, if the damage is not due to the negligence of the client.

<<back