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

An evaluation of the suitability of the Istisna contract to financing small enterprises Essay example
Masters
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Finance & Accounting
Pages 16 (4016 words)
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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. …

Introduction

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. ...
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