Question Summary:
The Hire Purchase Scheme (HP)

Question Detail:

 
The Company in which I am working in has a department called CSD (Canteen Stores Department). CSD offers Hire Purchase scheme to its employees to facilitate them for purchasing products which they cannot purchase in cash.
I want to purchase the car as per the following terms and conditions
1-Car will be purchased on installment either for 3 or 5 or 7 Years of payment plan.
2-The down payment at the start of the contract and the installment duration will determine the total price of the car. (More down payment will result in Lesser total price)
3-CSD terms it as hire purchase scheme but I will have no such intention (Niyaa) as taking the car on rent but my sole intention will be to pay the price of the car in installment and own the car at the end of the installment period.
4-Car will be fully maintained by the purchaser during the installments period.
5-Purchaser is totally liable for the car during the installment period.
6-Car will have insurance cover and insurance money will be paid by purchaser in installments as well.
7-Although there is a nominal penalty for delaying installment but I will not delay the installment to avoid the penalty.
Is it acceptable as per the islamic rules to purchase the car as per the above terms and conditions

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh
The Hire Purchase Scheme (HP) is not Shariah Compliant for the following reasons:
 
1. There are two transactions running parallel to each other. One is a hire and the other is a purchase. Both contracts are dependent on each other and are not separable and independent of each other. Rasullullah (Sallallahu Alayhi Wa Sallam) prohibited from two transactions within one transaction.
 
2. The seller holds legal title of the vehicle until maturity. This is not Shariah Compliant as the purchaser should be the sole and complete legal owner of the vehicle with all its rights and benefits.
 
3. The monetary penalty is actually interest for late payments on instalments. This is not Shariah Compliant.
 
4. Insurance cover is not permissible.
 
You may contact the Darul Iftaa should you wish to engage with your company in devising a Shariah Compliant Solution.
 
And Allah Ta’āla Knows Best
 
Ismail Desai,
Darul Iftaa
Checked and Approved,
Mufti Ebrahim Desai.