Ijara Mode-Hire purchase under Sirkatul Meelk (HPSM)

Ijara Mode-Hire purchase under Sirkatul Meelk (HPSM)  

Meaning and Definition:
Under this mode Bank may supply implements/ equipment/goods on rental basis. The ownership of the implements/equipment/goods will be with the Bank and the client jointly and the portion of the client will remain to the Bank as mortgage until the closure of the investment account, but the client will be authorized to possess the equipment for certain period. The client, after completion of the installments, will be the owner of the implements/ equipment/goods.

TYPES OF HIRE PURCHASE

Hire purchase is a special type of contract, which has been developed through practice. Actually it is a synopsis of three contracts-
i)    Shirkat  -
ii)    Ijara –
iii)    Sales –
These may be defined as follows:

Shirkatul Melk

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.

Types of sale contract in hire purchase under shirkatul melk

As per procedure of transfer of ownership and legal title of the part owned by the Bank is transferred to the other partner, the sale contract may be of various forms. In SIBL the following types of Sale Contract in Hire Purchase under Shirkatul Melk are followed,

1. Hire Purchase under Shirkatul Melk through Transfer of legal title by gifts
          (for no consideration.)
2. Hire Purchase under Shirkatul Melk Through transfer of legal title (sale) at the end of hire period for a token consideration.
3. Hire Purchase under Shirkatul Melk through transfer of legal title (sale) at the end of Hire period for payment of a specified amount to the hire by the hirer.
4. Hire Purchase under Shirkatul Melk through transfer of legal title (sale) period to the end of the hire term for a price that is equivalent to the remaining ijarah /rental instruction.

  Ijarah

The term Ijarah has been derived from the Arabic works (Air) 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 has been defined as a contract between two parties, the Hire and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hire. It is a hire agreement under which a certain asset is hired out by the Hire to a Hirer against fixed rent or rentals for a specified period.

  Sale

This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid / 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 for purchase of an asset like land, building, machinery, transports etc. Purchase the asset with that equity money, own the same jointly; share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion 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 sells and transfers the ownership of its share / part / portion to the Client 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.

IMPORTANT FEATURES OF HPSM

a)    It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to buy the same form the Bank on Bai’Murabaha  i.e. cost plus agreed upon profit.
b)    It is permissible to make the promise binding upon the Client to purchase from the Bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
c)    It is permissible to take cash/collateral security to Guarantee the implementation of the promise or to indemnify the damages.
d)    It is also permissible to document the debt resulting form Bai’Murabaha by a Guarantor, or a mortgage, or both like any other debt. Mortgage/Guarantee/Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.
e)    Stock and availability of goods is a basic condition for signing a Bai’Murabaha Agreement, Therefore, the Bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai’Murabaha Agreement with the Client.
f)    After purchase of goods the Bank must bear the risk of goods until those are actually delivered to the Client.
g)    The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per contract.
h)    The Bank shall sell the goods at a higher price than the purchase price to earn profit.
i)    The price once fixed as per agreement and deferred cannot be further increased.
j)    It is permissible for the bank to authorize any third party to buy or receive the goods on bank’s behalf .The authorization must be in a separate contract.

Rules for Hire Purchase Under participatory Owenership

a)    Everything that is suitable to he considered a price, in a sale, can be suitable to be considered as rental in a hire contract.
b)  It is a condition that the rental falls due from the date of handing-over of the asset to Hirer and not from the date of contract or use of the asset.
c)  It is permissible to advance, defer or install the rental in accordance with the Agreement.
d)    Ii is permissible to review the hire period or the rental or the both, if the Hiree and the Hirer mutually agree to do so.
e)  The hired asset is a trust in the hands of the Hirer. He will maintain the asset(s) with due produce and shall not be held responsible for the damage or destruction of the asset without transgression, default or negligence, otherwise he must be responsible for the same.
f)     The Hiree/owner bears all the costs of legally binding basic repairs & maintenance including the cost of repi~wement of durable parts on which the permanence and suitability of the hired asse(s~ depend or as per Contract.
g)  It is permissible to mal~e the Hirer to bear the cost of ordinary routine maintenance, because this cost is normally known and can be considered as part of the rentaL
h)    It is permissible for the Hirer to let the asset to a third party during the hire period whether for the same renUil or more or less as long as the asset is not affected by the change of user and not barred I restricted by the hire agreementlcustonis to do so.
i)    It is permissible to purchase an asset bearing a hire contract. The hire contract may continue since the purchas~egrees to its continuity up to the end of the hire term. All iights and liabilities emanating from the hire contract will transfer to the new owner. But if the sale-contract is drawn and the purchaser is oblivious of the hire contract, he has the right to rescind the purchase contract and the hire continues.
j)     As soon as the hire period terminates, the Hirer is under obligation to return the asset to the owner or if the Hiree agrees he may enter a fresh hire contract or purchase it from the Hiree on payment o~ agreed upon price as per market rate.
k)    The hire contract is binding and no one party shall unilaterally rescind except reasons that abrogate binding contract s’ur.h as damage or destruction.
l)    If the hired asset is damaned or. destructed by the act of Allah and if the Hiree offers a substitute with the same sne5~fications a~eed upon jn the hire contract the contract does not terminate.
m)    It is also permissible to sell the lured asset by the Hiree to the Hirer during the tenure of the hire periode the part by part or infuflilI at a time. As soon as any part or infull  the asset is sold during the tenufe of the hire agreement the hire contract for that part or for the full asset as the case may be, he lapsed and the rental ceased to apply accordingly.