NBV - No Bank Vehicles
INNOVATIVE SHARIAH-COMPLIANT FLEET VEHICLE RENT-TO-BUY LAUNCHED IN SOUTH AFRICA
South Africans have been long in need of a strictly shariah-compliant vehicle Rent-to-buy product that is available to everyone, including business and individuals. No Bank Vehicles (NBV), is a novel South African brand that has launched a unique Islamic rent-to -buy product making access to transport easy and uncomplicated. The M7 Group has launched a 100% shariah-compliant product which is unlike anything available in South Africa. It is the first of its kind. One distinguishing feature of NBV is that there is no bank or intermediary. NBV owns the vehicles. The rent-to-buy, permits the renter to rent the vehicle from NBV directly. There is neither any interest charge nor any finance charge and the payments are locked in at a fixed valued pegged at signature of the contract. There is no penalty clause on late payment. The rent-to-buy options have flexible periods of 12, 24, 36, 48, and 54 months, which means the renter can tailor a package a deal according to specific needs. There is a minimum deposit of 10% which can be dispensed with in certain exceptional circumstances depending on financial standing, solvency, etc. A higher deposit may be placed.
The rent-to-buy program allows the renter, e.g. businesses and professionals, to a 100% income tax deduction and Vat input claim in respect of the full rental amount paid for the vehicle used during trade, because it is a bona fide rental agreement. To the contrary, in a regular instalment sale agreement, the instalment is not tax deductible at all. In an instalment sale agreement, the purchaser is permitted to claim an expense on depreciation at 20% for five years – but once the vehicle is sold or traded in, to write back the appropriate depreciation. NBV’s model is to rent out new and low kilometre demo model vehicles.
Apart from the tax benefit, given that there is no bank involved nor any interest, a unique selling point of NBV’s rent-to-buy product is that NBV does not compel the renter to insure the vehicle. More importantly, the rent-to-buy system has various options, one where 90% of the risk is carried by NBV, with 10% risk carried by the renter; and another where the renter carries 90% of the risk, with 10% risk carried by NBV, with no compulsion for insurance. Should the renter wish to insure the vehicle the renter is free to do so at his/her cost.
Unlike some lease agreements, where there is usually a balloon payment at the end, which is the equivalent of 30% of the vehicle, NBV’s rental scheme carries no balloon payment. So, what happens at the end of the rental period? At the start of the rent-to-buy scheme, NBV gives the renter an irrevocable option to purchase the rented vehicle, effective at the end of the rental scheme, for an upfront agreed fixed price, which is 1% of the original value of the vehicle plus the initial deposit paid. So, if the vehicle value was R300,000.00 then the fixed price will be R3,000.00. Yes, that’s true, no mistake!
Apart from the monthly rental amounts being generally less than the monthly amount payable in the instalment sale agreement with a conventional bank, which also has a balloon payment, the rent-to-buy scheme also has added flexibility: For instance, NBV permits the renter to terminate the rental agreement unilaterally, on 30 days written notice, in the event of certain unforeseen difficult circumstances such as sudden unemployment or disability. In such a case, there are no penalties and NBV does not hold the renter liable for the remainder of the contract as is traditionally the case in most instalment sale or lease agreements with interest bearing finance transactions. NBV also, as part of its social responsibility, permits the renter’s family to return the vehicle without any penalties or future instalments if, for instance, the renter passes away. In other instalment sale agreements, the estate is liable to pay the balance of the amount, with interest. The best part is that NBV permits the renter to take a payment holiday of not more than 30 days per year if the renter goes away on holiday or is ill or travels for Haj. The rent-to-buy scheme is put on hold. No interest, no penalties. Simply return the vehicle for safekeeping with NBV at a nominal parking fee. When the renter collects the vehicle from the payment holiday, the rental continues as normal with no prejudice to the renter with holiday period added to the rental period. Terms and conditions apply.
We asked NBV’s Chief Executive Officer, as to the NBV’s vision and we were told that the single objective of the company is to introduce a clean, no strings attached, pure Islamic rent-to-buy model, to put people into vehicles. He also pointed out that NBV’s rent-to-buy scheme is not restricted to Muslim clients and is available to everyone. We asked the CEO as to the level of compliance with shariah law and he jokingly said, “We might even get SANHA approval”.