Hire Purchase under Shirkatul Melk is a special type of contract, which has been developed through practices. Actually it is a synthesis of three Contracts:

1. Shirkat

2. Ijarah, and

3. Sale

• Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called “Shirkatul Melk contract”.

• Ijarah derived from the Arabic word ‘Ajr’ and ‘Ujrat’ which means consideration, return/wages or rent. That is the exchange value or rent of service of an asset.

• Sale or sale contract against which buyer gets the ownership of the goods or asset transferring from seller by paying agreed upon price paid or to be paid by the buyer.

Thus in Hire Purchase under Shirkatul Melk mode both the Bank and the client supply equity in equal or unequal proportion, Purchase an asset (like land, building machinery, transport, etc.) own the same jointly, share the benefit as per agreement and bear the loss in proportion of equity. The share/proportion of the asset owned by the bank is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sell and transfer the ownership of its Share portion to the client against payment of price, fixed for that portion either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement.

Types of Sale Contract in Hire Purchase Shirkatul Melk (HPSM)

1. Through gradual transfer of legal title/ownership a separate sale contract should be executed for payment of such type of sale contract.

2. Legal title/ownership transfer by gift without any further consideration through a separate gift deed executed by the Hiree.

3. Legal title transfer for a token consideration at the end of the Hire period by a separate sale of contract on payment of agreed upon token consideration.

4. Legal title/ownership transfer for payment of a specified amount to the Hiree by the Hirer at the end of the hire period.

5. Legal title/ownership transfer for a price that is equivalent to the remaining Ijarah/rental installments. It requires a separate sale contract at the time of sale.

Important features

01.

The Bank (Hiree) and the client (Hirer) purchase the asset jointly with specified equity sharing the ownership under HPSM contract.

02.

Though ownership is joint, asset may be registered in the name of any one mentioning in the HPSM agreement.

03.

Rent can not be considered as price or part of price of the Asset.

04.

In the HPSM agreement Hiree does not sell or Hirer does not purchase the asset but they promise to sell and purchase the same part by part only.

05.

The hire contract becomes effective from the day on which the Hiree transfers the possession of the hired asset in good order and useable condition to the Hirer.

09.

The Hirer is responsible for keeping the asset in good condition as a trustee.

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