Islamic hire-purchase transaction

Abstract

Islamic hire-purchase transaction is a modified form of hire-purchase contract that has been practiced for a long time by conventional banks. The Islamic hire-purchase begins with ijÉrah contract and ends with transferring the ownership to the lessee by a sale contract for a nominal price or the asset will be gifted to him. The practiced forms by the Islamic banks were criticized by many scholars and researchers for some issues. The major issues are: the transaction is formed of two contracts, it comprises more than one condition, the practiced forms according to the schools of fiqh violate many conditions required for a lease contract and whether the lessor is legally bound to honor a promise usually is made by him to transfer the ownership to the lessee. The study followed comparative and analytical method. The research discussed the classic ijÉrah and the Islamic hire-purchase. Similarities and differences between both contracts are indicated. The issues in the Islamic hire-purchase comprehensively are discussed, relying on the view of prominent classical and current scholars. Moreover, some similar transactions to the Islamic hire-purchase have also been discussed. These transactions have been compared to Islamic hire-purchase and similarities and differences between them and the Islamic hire-purchase are indicated. This is to show whether the Islamic hire-purchase is preferred over them or not. To conclude, ijÉrah and Islamic hire-purchase are absolutely two different contracts. However, amongst the practiced forms of the Islamic hire-purchase, some of them conform to the Islamic law of contracts and others do not. Therefore, the prohibitions in the aÍÉdÊth do not apply to indicated legal forms of the contract. The Islamic hire-purchase as well as other similar contracts have advantages and disadvantages for the contracting parties. For this reason, it is hard to tell that one of these contracts can absolutely be preferred over the others.