Musharaka Mutanaqisa is a contract of partnership between two parties, where one partner gradually buys the whole parts of the property. The transaction starts with the formation of partnership, after which buying and selling of the equity take place between the two partners. Hire Purchase Musharaka Mutanaqisa (HPMM) means purchasing and acquiring ownership of asset by sharing in equity and paying rents for the rest of the equity held by the Bank or other party. It is a synthesis of three contracts:
- Musharaka Mutanaqasa
- Ijarah &
- Sale
Under this mode, the Bank and the customer on contract basis jointly purchase vehicles, machineries, building, apartment etc. The customer uses the portion of the assets owned by the bank on rental basis and acquires the ownership of the same assets by way of paying banks portion of the equity on the assets on installments together with its rents as agreed upon
Key Features
- In case of HPMM, the asset / property is jointly purchased by the Hiree (Bank) and the Hírer (Client) with specified equity participation under a HPMM Contract and the Hiree and the Hirer becomes co-owner of the asset.
- A Hire Aagreement will be executed between Hiree (Bank) and the Hírer (Client) in which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulations are also to be clearly stated.
- As soon as any part of Hiree’s (Bank’s) ownership of the asset is transferred to the Hirer (Client) that becomes the property of the Hirer.
- Under this agreement the Bank acts as a partner, as a Hiree and at last as a seller, on the other hand the client acts as a partner, as Hirer and lastly as a purchaser.
- Ownership risk is borne by both the Hiree and Hirer in proportion to their retained ownership/equity.