Assignment Istisna

MEANING OF ISTISNA Literall meaning : •

Sana’a (making , manufacturing or constructing something)

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Also means to finance infrastructure projects, manufacturing aircrafts, construction of power stations, buildings, and equipments, which have to be completed on need basis.

Technically meaning : •

Sale transaction where a commodity is transacted before it comes into existence. It is an order to a manufacturer to manufacture a specific commodity for the purchaser.

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Istisna’a also a contract as a financing tool, which is a contract that allows the sale of a commodity that does not exist at the time of contracting, while payment can be made on spot or deferred basis.

Overall, Istisna’a can be said as a sale contract between the bank as Al-Sani (the seller) and the customer as Al-Mustasni (the ultimate purchaser) whereby the bank. It is defined as “a contract with a manufacturer to make something “ or “ a contract on a commodity on liability with the provision of work.” A more complete and precise definition by Mustafa Ahmed Zarqa” a contract of selling a manufacturable thing with an undertaking by the seller to present it manufactured from his own material with specified description at a determined price.” The person who manufactured the thing is called “Soni” and the person who ordered its manufacture is called “Mustasni” and the thing made “Masnu”.

APPLICATION OF ISTISNA (IN BANKING) Most of the banking institutions in the middle east applied the Istisna’ concept as one of their banking products. We choose Bahrain as one of the country that also applied this concept. One of the banking institutions there is Bank Al Baraka that is located in Manama. Below is the processs of Istisna’a sale in Bank Al Baraka.

PROCESS OF ISTISNA’A SALE 1. The process starts when a customer expresses to the bank its intention to purchase a commodity that has to be manufactured, built or assembled with certain specifications at a specified price. 2. The bank and the customer enter into an Istisna’a contract under which the bank undertakes to have the subject commodity manufactured and delivered to the customer within a certain period in return for a specified price payable on spot or on several installments or in one stroke on deferred basis. 3. The bank then enters into a back-to-back Istisna’a contract with a third party to have the subject commodity manufactured, built or assembled.

PARTIES OF ISTISNA’A CONTRACT 1. Istisna’a requester: is the buyer (owner of the project) 2. Manufacturer: is the bank (seller/producer) which enters into contract with the Istisna’ requester and commits itself to provide the subject commodity. 3. Contractor: is the seller, contractor or actual contractor, which concludes the back-to-back contract with the bank and starts manufacturing or construction of the subject commodity. It is the bank’s sub-contractor or supplier. 4. Product: is the commodity defined and contracted to be manufactured.

SHARIA CONTROLS OF ISTISNA’A 1. The subject product must be precisely defined with details including: o

Product (vehicle, aircraft, real estate etc.)

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Type (brand and make)

o

Description (product schedule of specifications)

2. Permitted Deferment

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The subject product is to be manufactured or procured form the market. Therefore, a maturity date must be specified in order to avoid risk.

o

The term depends on the nature of the product to be manufactured in accordance with the Istisna’a contract entered into by the two parties and subject to the conditions and specifications set out in the term sheet of the contracted commodity as agreed between the two parties.

3. Price o

The price be precisely defined and known by the two parties.

o

The price should not be affected by any increase in market prices or labor in normal circumstances.

o

The price may be adjusted if amendments are made to the contracted product by mutual agreement of the two parties.

REGULATIONS OF BUYING AND SELLING OF ISTISNA ACCORDING TO THE FUQAHA AND ARGUEMENT Muslim jurists have tried to establish the legality of this contract from different legal sources: the Qur'an, the Sunnah, Ijma', Qiyas, Istihsan, and Maslahah. However, Istihsan seems to represent the first legal basis for this contract especially in the literature of the classical schools of law. AlKasani in this regard said: Concerning the legality of Istisna', in principle it would not be allowed on the basis of Qiyas because it is a sale of what we do not have nor on the basis of Salam and the Prophet had prohibited the sale of what we do not have ... and it is allowed based on Istihsan because people are unanimous about its need. They have used it through the ages and the Prophet has said:

‫ل تجتمع أمتي على ضللة‬ "My community shall never agree on an error"25

‫ما راَه المسلمون حسناً فهو عند الله حسن‬

"What is good for Muslims is good in the sight of Allah".26 Regarding the basis of Istisna' under public interest (Maslahah), which refers to unrestricted public interest in the sense of not having been regulated by the lawgiver and no textual authority can be found on its validity or vice versa, 28 al-Ashgar said: "The use of this contract, for example: in building construction, shoes, furniture and other items without objections from the scholars is a demonstration of the general need. Therefore, it should be legal on the basis of public interest".29 On the other hand, Siddiq al-Darir maintains that Istisna' is based on Qiyas and not against it as it is claimed by the Hanafis. He argues that although the subject-matter in this contract does not exist, its availability is certain, and there is no risk (gharar) especially in the opinion that Istisna' is a binding contract. Then it is a legal contract, and any contract free from excessive risk (gharar} is a contract in accordance with Qiyas.30

REFERENCES:

http://www.financeinislam.com/article/1_35/1/207

http://www.abg.bh/English/FIstisna.htm

http://islamicbankers.wordpress.com/focus/in-focus-bai-salam/