Скачать или смотреть Istisna Manufacturing Contract, Riaz Ansary, Part 8

Istisna Manufacturing Contract, Riaz Ansary, Part 8


The six contracts (more accurately called ‘nominate’ contracts) described in this chapter are:
1. Murabaha;
2. Mudaraba;
3. Musharaka;
4. Ijara;
5. #Istisnaa
6. Salam.

Istisna'a as a mode of Islamic finance
Istisna ’ a is a sale contract whereby the purchaser asks the seller to manufacture a specifically defined product, using the seller’s raw materials, at a given price.
Istisna ’ a is a sale contract between al-mustasni’ (the ultimate purchaser) and al-musania’a (the seller). Under this system al-musania’a – based on an order from the al-mustasni’ – undertakes to have manufactured or otherwise acquire al - masnoo ’ (the subject matter of the contract) according to specification and sell it to al - mustasni’ for an agreed upon price and method of settlement. This is whether it is, at time of contracting, by instalments or deferred to a specific future time. It is a condition of the Istisna’a contract that al - musania’a should provide either the raw materials or the labour.
The contractual agreement of Istisna’a has a characteristic similar to that of Salam in that it provides for the sale of a product not available at the time of sale. It also has a characteristic similar to an ordinary sale of goods in that deferred payment is allowed. However, unlike Salam , the price in the Istisna’a contract is not paid when the deal is concluded. A third characteristic of the contractual agreement of Istisna’a is that it is similar to Ijara (employment) in that labour is required in both.

Parallel Istisna’a
If al - mustasni (the ultimate purchaser) does not stipulate in the contract that al - musania’a (the seller) should manufacture the al-masnoo’ by himself, then al-sani’ may enter into a second Istisna’a contract in order to fulfil his contractual obligations in the first contract. This second contract is called a parallel Istisna’a .
Source: #Accounting_and_Auditing_Organisation_for_Islamic_Financial_Institutions (#AAOIFI)

Definition of Istisna’a
Th e word Istisna ’ a is derived from the Arabic term Sina’a, meaning to manufacture a specific commodity. Istisna’a is an agreement whereby a customer requiring an item, equipment, building, or project, which needs to be constructed, manufactured, fabricated, or assembled, approaches the bank for financing.
Istisna’a is a financing method used for the production of specific goods. It is also a frequently applied model for construction finance. In essence, Istisna’a is an agreement whereby one
party pays for goods to be manufactured or pays for something to be constructed. As a general rule the ultimate user will make periodic instalments according to the actual progress in construction or manufacturing. For example, a ferry company wanting to buy a new ship would make periodic instalment payments to the shipbuilder as the assembly process moves forward.
In theory the contract could be made directly between the end user and the manufacturer but typically it is a three - party contract, whereby the bank acts as an intermediary. This is achieved by using a structure called a parallel or back - to - back Istisna’a that consists of two Istisna’a contracts. Th is constitutes the basis of such an arrangement. Under the first agreement
the bank agrees to let the client pay back on a longer - term schedule, whereas under the second contract the bank, in the role of a purchaser, makes progress instalments to the producer over a shorter period of time.
Normally, the bank achieves profits by adding a mark-up. Hence the bank ’ s compensation is the differential between the values of payments under the two contracts.

Istisna’a and parallel Istisna’a
In Istisna ’ a the bank simultaneously enters into two parallel agreements as follows:
*First agreement*. This agreement is between the bank and the customer. The customer provides to the bank complete and detailed specifications for the item, equipment, building, or project to be acquired including its layout, design, materials to be used, as well as the desired quality and performance standards, and the time of completion. The specifications may also identify the contractors, manufacturers, and the suppliers of the raw materials. The customer may also
provide an estimate of the costs involved, or the bank may obtain the quotations from the contractors, manufacturers or suppliers specified by the customer. The bank then adds, to the costs provided, its profit margin and quotes a price to the customer. On approval and acceptance by the customer, they enter into an agreement, which includes, among other things, the mode of payment to the bank. This could be in the form of a lump sum, or in instalments.