StudentShare solutions
Triangle menu

An evaluation of the suitability of the Istisna contract to financing small enterprises - Essay Example

Nobody downloaded yet

Extract of sample
An evaluation of the suitability of the Istisna contract to financing small enterprises

These banks offer services based on religious teachings and laws. The banks continue to provide innovative financial products aimed at filling the existing gaps in the financial industry. These banks have used a philanthropic approach, adopted from Islamic teaching, to offer high quality services to customers. One of these approaches has been the Istisna contract. Based on the Sunnah of the prophet Muhammad (PBUH) this contract has transformed the banking industry immensely (Mahlknecht, 2009). The use of this contract may be enormously beneficial to people seeking comprehensive funding for small businesses.
The contract and its use by Islamic banks
The Istisna contract falls under the category of manufacturing contracts. It was created by the Islamic Financial Institution in line with the Istisna believes. The contract is strongly related to the shariah. In Arabic, the word Istisna means making a request to someone to build, construct or manufacture something for another. This contract is based on the principle meaning of the word. The contract, therefore, involves agreements for sale and purchase between two individuals. The items under discussion in the contract agreements of Istisna are non-existent. This can be termed as the greatest difference between the Istisna and other financial contracts within the industry (Warde, 2000). This has led to the identification of the Istisna as a exceptional sale agreement. Within the scope of the Istisna contract, the agreement is normally based on trust between the parties. The asset in the agreement normally has to be constructed or manufactured in a later date. The parties normally agree on the date in which the finished product should be delivered. The process of creating an Istisna contract needs to be handled with considerable care. The Shariah law dictates that a commodity intended for sale must in the hands on the seller when the sale is being made (Mahlknecht, 2009). The seller must also posses the ownership of the product intended for sale. A product to be sold must also have been gained through acceptable means by the Islamic law. The Istisna contract, however, seems to offer a slightly different ideology. In the Istisna contract, the products being sold are normally, not in their final form. The core aspect of the contract becomes the religious values attached to the agreement. All elements of the contract are based upon trust and belief in the ability of the manufacturing party to deliver items. The quality and quantity of the product is expected to meet the agreed upon standards. In the contract, the parties agree on the specifications of the goods to be manufactured as well as the date of completion of the manufacturing process. The cost price of the items can also be another element agreed upon by the contracting parties. All these elements are done through agreements made by the contracting parties. Within the scope of the Istisna contract, the Islamic financial institutions are requested by customers to manufacture a product. The product is manufactured by the financial institution on behalf of the customer. Upon completion of the construction, the product is then delivered to the customer for payment. Trust becomes essential as the customer may not be able to cater for the payment of the products delivered. An important note to make here is that the contract terms cannot be changed once they have been agreed upon. This becomes essential in ensuring that each party delivers its part of the bargain. Failure by either party, though, immediately makes the contract obsolete. The ...Show more


The 21st century continues to see new inventions in many sectors of the economy. The modes of operations continue to diversify as years progress. The development of Islamic banking has immensely transformed the banking sector. …
Author : alvenasipes
An evaluation of the suitability of the Istisna contract to financing small enterprises essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"An evaluation of the suitability of the Istisna contract to financing small enterprises"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Small and Medium Enterprises
But times have changed with the globalisation regime multinational enterprises have made a distinctive mark on the local markets as well. While on the one hand this affected the economic factors of the region or country, on the other the SMEs started realising the need for pressing changes in the management of different aspects of the enterprise.
5 pages (1250 words) Essay
Globalisation and Small Medium Enterprises
However, globalization also raises the risk of marginalization of countries, in particular the poorest countries, and the most vulnerable groups everywhere"2 "Several CEI countries, which are moving towards a free market economy, fear, that the globalization process of the world economy and markets might affect an economic texture that is still unprepared from a technical, financial, organizational and social point of view.
12 pages (3000 words) Essay
Small and Medium Enterprises Master Essay
SME either Small or the Medium-Sized Enterprises generally serves as the whole Switzerland, by providing the full range of various services and products from the fixed-line and also from the mobile communications to data service, internet, maintenance as well as the operation of the whole IT infrastructure.
14 pages (3500 words) Essay
Financing a Small Business
But, as scientists and economists struggle to devise ways of bringing back the lost balance, companies are finding excuses to fire excess employees and laying off its workforce at a fast pace to keep their costs low. This has led to huge unemployment in even the most developed countries let alone the underdeveloped.
5 pages (1250 words) Research Paper
Small and Micro Enterprises
The state is the most urbanized the country. Despite these statistics, the major industries in Tamil Nadu continue to be small and medium based industries that thrive on the trade of agricultural commodities like rubber and flowers among many others. The principle and the most successful among these being the Rubber Park, Apparel Parks, Floriculture Park, TICEL Park for Biotechnology, Siruseri IT Park, and Agro Export Zones among others.
2 pages (500 words) Research Proposal
Economics of small and medium enterprises
According to the essay, SMEs have become serious victims of jeopardy of late, due to various unfavourable factors making it difficult for them to sustain their existence. In order to eradicate such vulnerability, a number of practices like supportive tax reforms, financial aids, agreements with creditors and banks have been embraced by government.
10 pages (2500 words) Essay
Management (Small bussines & Enterprises)
In the field of entrepreneurship study, the concept of personality traits and psychological traits has been a subject of a number of debates and controversies. Personality Traits is one of the most popular research areas and it is also one of the subjects which has one of the
8 pages (2000 words) Essay
Managing small and Medium Enterprises Year 3
(Bradley, 2007) for senior citizens who are in the age bracket of 55 years and above. Indeed, the company has always focused on product development, value addition, branding and differentiation strategies; therefore, today it has
25 pages (6250 words) Essay
Small and medium enterprises

The author explains that small and medium enterprises have been playing a pivotal role in the economic development and uplift all around the world. Their part in creating new employment opportunities has been pivotal and decisive both in the first and third world countries. There are different success criterions for an SME.

12 pages (2500 words) Essay
Small and Medium Enterprises (SMEs)
The effect of globalization has consequently resulted in industrialization in developing countries. Many SMEs have then been set up through industrialization and therefore it has created employment opportunities. Developing countries are among other factors,
4 pages (1000 words) Essay
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Click to create a comment
Contact Us