About islami bank HPSM.

1. Welcome

2.  Hire Purchase Under Shirkatul Milk(HPSM) Inv, Features,
Items/Sectors, Method of rent calculation/Fixation of Installment
and workshop thereon

3. Hire Purchase
 It is a contract between two parties, one is lessor & another is Lessee to
acquire a rentable asset by the Lessor and for taking the services of the
Asset by the Lessee. The Lessee pays rent plus principal for getting the
Ownership of the Asset.
Hire Purchase under Shirkatul Melk is a Special type of contract which has been developed
through practice and approved in sharia. Actually it is a combination of three contracts:
 Shirkat
 Ijarah and
 Sale

4. SHIRKATUL MELK
Shirkat means partnership. Melk means in ownership. When two
or more persons supply equity, purchase asset and own the
same jointly and share the benefit as per agreement and loss
proportion to their respective equity, the contract is called
Shirkatul Melk
IJARAH
It is a lease agreement under which a certain asset is leased out by
the lessor (bank) to a lessee (customer) against specific rent or
Rentals for a fixed period.
Sale
This is a 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.

5. MAIN ELEMENTS : HPSM
Wording: Offer & Acceptance
Contracting Parties: Lessor & Lessee
Subject matter of the contract: Rent & the

6. STAGES OF OWNERSHIP
Purchase under Joint
Ownership
Hire
Sale and/or transfer
Ownership to the
other partner lessee

7. FEATURES : HPSM
 The Bank and the client purchase the asset jointly with specified equity
sharing the ownership under HPSM contract.
 Though ownership is joint, asset may be registered in the name of any one
mentioning in the HPSM agreement.
 Rent cannot be considered as price or part of price of the Asset.
 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.
 As the portion of the Bank is sold and transferred part-by-part, the rent will be reduced
proportionally.
 Under HPSM agreement bank will act as partner, Hiree and at last as a seller and client
will act as partner, as a hirer and lastly as purchaser. The sale and purchase will be
effected by a separate sale contract.

8. FEATURES : HPSM
 Ownership risk will be borne by both the parties proportionally.
 The Hirer is responsible for keeping the asset in goods condition as a trustee.
 The Hirer cannot change or remove the property without the permission of the Hiree.
 HPSM is a binding contract for both Bank and the Client who are committed to fulfill
relevant obligation
 IN HPSM agreement any stipulation may be made that can not be contradict with the
agreement and acceptable to both parties.
 HPSM may be made for long or medium term and should not for items useful life of less
than two years.
 Before transferring the asset to the hirer if the contract is revoked , hirer will be owner for
paying portion.
 To secure the Bank, the hirer will mortgage his portion or share in the asset to the Bank.

9. Gestation Period
 The period from the date of 1st disbursement for acquisition of the asset/property to the
date of handing over the asset/property to the Hirer in good order and useable
condition to derive the desired service(s)/benefit(s) is called “Gestation/Interim period”
for making construction’ installation of the asset into usable condition.
 During the gestation period, the asset remains under construction installation making
form, so the asset cannot yield the desired services/ benefit(s) and as such no rent
should be charged for that period.

10. Shariah Issues: HPSM
 Investment is made confirming ownership on the asset
 Investment is allowed ensuring existence to the asset
 No Rent on Rent
 Rent for the Gestation period is not considered, rather value addition of
the price is recovered.
 Asset is handed over to the purchaser in useable condition.

11. Investment Items
Land
Building
Apartments
Machinery
Equipment
Transport

12. Investment Sector
Commercial
Industrial
Agriculture
Transport
Real Estate
Other schemes
Methods of Installment Calculation
Monthly Installment =A
A= P* I (1+i)n/(1+i)n – 1
A= Monthly Installment P = Principal I = Rate of Return n= No of
Installment

13. Fixation of Installment
 Rate of Return = 15/ 100*12
= 0.0125
Rent of the gestation period
Rent of the gestation period is to be calculated also & spread over the whole period of the
investment and to be added up with the monthly installments.
** Plus rent of the gestation period considering higher asset value

14. Workshop
 Suppose an HPSM Investment of Tk. 10,00,000/- was allowed to a client for
a period of 10 years excluding gestation period of 18 months at 15% RR.
What will be the monthly installment ?
Solution
 Principal (P) = Tk. 10,00,000/= Rate of Return ( I ) = 15%
 No of Installment (n) = 120 Gestation period =1.5 year
Un Earned Rent/Profit for gestation period (G) = Tk.2,25,000/-
Additional Installment for Gestation period = Tk 2,25,000/120
= Tk. 1,875/-

15. Solution
A= P*I (1+i)n/(1+i)n – 1
Or, 10,00,000*0.0125(1+.0125)120/ (1+0.0125)120 – 1
Or, 10,00,000*0.0125*4.4402/4.4402-1
Or, 55502.6653/3.4402
= Tk.16,134/-
Total Installment Tk. 16,134/-+Tk. 1,875/-= Tk. 18,009/-

16. THANKS
For Your Patience