A new hybrid shape memory alloy (SMA)-ceramic composite is being developed for use in extreme environments. The proposed composition is intended to address past issues with brittle failure in the ceramic phase by generating a compressive residual stress state in that phase. This biasing load takes advantage of the superior mechanical properties of ceramics when loaded in compression. Past investigations of SMA composites with an elasto-plastic second phase have shown that such a residual stress state may be developed in the second phase through the generation of irrecoverable, plastic strains. To take advantage of this characteristic, a class of ceramics known as the MAX phases are being used. These ceramics have a unique response characterized by the formation of kink bands which can allow for both recoverable and irrecoverable inelastic strains. A model of the hybrid composite incorporating this response and the effects of the microstructure is developed to explore the ability of this material system to generate such stress states. To this end, an approximation of the MAX phase response is introduced to describe the irrecoverable kink band formation. The effects of the microstructure are accounted for through the generation of a finite element mesh from microtomography results of the considered composite. Finite element simulations of the hybrid composite are performed using the assumed MAX phase response and a recent 3D phenomenological SMA constitutive model. The effective stress-temperature response of the composite is determined and the interaction of the different phases is discussed. Specifically, it is shown that composite still exhibits a hysteretic response although with a decreased hysteresis height and shifted transformation temperatures. The effect of the microstructure on the composite response is discussed. Finally, it is shown that through an actuation loading path a compressive residual stress state is developed in the ceramic phase.