Istisna’a Contract in Islamic Finance

UAE Laws and Islamic Finance

Dubai Construction

Thoughts from Iraj Toutounchian’s Islamic Money & Banking, Integrating Money in Capital Theory

Istisna ‘a appears in the literature as follows:

At the request of the client, the bank places an order for the manufacture of some equipment or the construction of some major item as road or water pipeline… When the item is ready, the bank buys it from the manufacturer and sells it to the client at whose behest the order was placed, at a profit, on a deferred payment basis.  (Khan 2000: 26-7)

While this is clearly a useful contract and one designed to promote production, it seems to me that it would be more practical and manageable for the bank if it were amended to read that the bank may sign, on the basis of a written request from a client, a civil partnership contract with a contractor for the manufacture of some equipment…

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