Issues in the application of HPSM by Islamic banks in Bangladesh

Purpose The purpose of this paper is to examine the concept of Hire Purchase under Sharikat al-Milk (HPSM) and identify the issues in its application by the Islamic banks in Bangladesh, a major Islamic finance market, with reference to the Shariah and accounting standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Design/methodology/approach The research identified the essential requirements of AAOIFI Shariah and accounting standards, conducted content analysis of HPSM documents and audited financial statements of Islamic banks, held a focus group discussion with Islamic banking executives and Shariah experts and interviewed professionals in Islamic banking and members of Shariah supervisory committees. Findings Although the HPSM concept was introduced in Bangladesh in 1990, there is no standardisation in its application. The research finds several issues in the application and financial reporting of HPSM by Islamic banks in Bangladesh. Research limitations/implications HPSM is a widely used mode of financing by Islamic banks in Bangladesh. The identification of the issues underlying HPSM will attract the attention of the practitioners, Shariah scholars, regulators and standard setters to introduce better controls, compliance, regulations and standards. Originality/value This research provides valuable insights into HPSM by identifying issues in its application by Islamic banks in Bangladesh. Despite its widespread use in the country, there is a significant lack of research highlighting these issues and proposing potential solutions. Addressing these issues is essential for enhancing Shariah compliance and maintaining stakeholder confidence in Islamic banking.