Istisna Agreement

4. The Islamic bank bears the construction costs to the contractor in the second contract of Istisna. Items requested by the customer must be accurately listed and location, delivery, price, etc., must be predetermined. Upon completion of manufacturing, the item must be sold to the customer on a staggered basis. It is usually a combination of two contracts: a civil partnership between the bank and the manufacturer (or the contractor) and another between the bank and, most likely, a public entity for security reasons. The bank is the financier, the customer the end consumer and the company or contractor of the manufacturers. There are many cases, especially in developing countries, where there are needs, where the financier is available and where the contractor has the necessary qualifications to meet the customer`s demand. The amended version of the treaty can help bring three parties together and allow other projects that cannot be completed. The trilateral agreement paves the way for large projects for which the client does not have the necessary means. For example, fictional Randalator Acme, Inc., is moving closer to The World`s Best Islamic Bank to produce a residential project with specifications for $1 million. Then the bank enters into an agreement with A Construction Company to build the houses with the same specifications for 800,000 $US. Istisna means asking someone to build, build or manufacture an asset.

In Islamic finance, istisna` is usually a long-term contract by which a party undertakes to manufacture, build or build assets, with the obligation for the manufacturer or manufacturer to deliver them to the customer once completed. In practice, the main advantage of an Istisna contract is that it can offer flexibility to the customer, as payments can be made in tranches related to the closing of the project, delivery or after the project outcome. Unlike istisna`, the payment of the Salam contract must be made in full in advance. Here`s how this system works: the customer who wants to have the project or installation enters into an istisna contract with the bank according to the customer`s specifications. The bank then enters into a parallel istisna contract with a manufacturer (who is not the bank`s representative; it is a separate third party) to comply with these specifications.

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  • April 10, 2021

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