Legal and Practical Issues with Hire Purchase Financing Products Based on Sharikah al-Milk

Undergoing Revision at Arab Law Quarterly

Keywords: Sharikah al-Milk; Hire Purchase Financing; Islamic Finance Instrument; Legal Issues


Since its inception in the 1960s, realization in 1970s, growth in 1980s, and proliferation
in 1990s, the Islamic banking and financial industry has been experimenting with a
range of financial instruments based on contracts, principles, and precedents of
Shari’ah. Bulk of these involve customizing classical Islamic transactions and refitting
them into conventional-esque products. The Islamic equivalent of hire-purchase is one
such innovation. More specifically, this paper focuses on the legalistic, juristic, and
practical issues surrounding hire purchase through Sharikah al-Milk (HPSM), an i-hirepurchase instrument which employs three contracts consecutively: lease, sale, and
partnership. Essentially spawned as a competitor to the hire-purchase conventional
products, HPSM products have been successful in attracting consumer attention
worldwide. Despite being a marketing success, legal issues persist with this product,
such as conjoining multiple contracts into one, legal status of a wa’ad (promise),
conflation of gift as a sale contract, conditional sales’ validity, etc.