1. Historical Development and Permissibility of HPSM

The Hire Purchase under Shirkah al-Milk (HPSM) in the Islamic banking and finance industry plays a significant role in facilitating financing arrangements. HPSM, which is widely practised by both conventional and Islamic banks, has found particular prominence in several jurisdictions. Despite some procedural and conditional variations, the overall practice of HPSM in both types of institutions demonstrates noteworthy similarities. This financing arrangement is structured as a combination of three distinct contracts: shirkah, ijarah, and sale. Under the HPSM framework, the bank finance or supplies the required types of equipment or goods on a rental basis. Crucially, the ownership of the leased property or equipment is jointly held by the bank and the client. The transfer of ownership takes place at the final stage of the contract, adhering to the customary practices aligned with Shari’ah principles. This chapter aims to delve into the historical evolution of HPSM, sheds light on its Shari’ah permissibility, and provides insights into the practical implementation of this financing arrangement in the IBF industry.