Professional Documents
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Report Ibfs
Report Ibfs
Report Ibfs
TITLE :
BAY’ AL-SALAM AND BAY’ AL-ISTISNA
LECTURE NAME :
DR. WAN SHAHDILA SHAH BINTI SHAHAR
PREPARED BY :
SESSION I 2023/2024
TABLE OF CONTENT
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ACKNOWLEDGMENT
Alhamdulillah, thanks to the divine presence because with the abundance of grace and
favours of time, life and energy that He bestowed, we were also able to complete this task
successfully.
First of all, we would like to express our appreciation to our lecturer, Dr. Wan Shahdila
Shah Binti Shahar for her guidance in the Written Report under the subject of Islamic
Banking and Financial Services. We have been guided with lots of her valuable suggestions
and experience throughout the process of completion of the assignment. With her guidance,
that has given us the space to complete this assignment on time. Not forgetting to thank our
parents who gave a lot of moral support and encouragement and provided all the facilities
throughout the process of preparing this Written Report.
Finally, this speech is also addressed to all parties who have been involved in the success
of this task either directly or indirectly, especially to the friends of the group who cooperated
a lot in making this Written Report a success. We greatly appreciate all the help that has been
given because without their help and support all these tasks may not be carried out perfectly.
Thank you.
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1.0 INTRODUCTION
Islamic banking is a booming industry in the world today. And it is universally accepted
by all groups of people now, irrespective of their faith. The range of products utilised in
different parts of the globe vary based on custom and needs of the community in that
particular area. A sale (bay’) is an exchange of one item for another or the exchange of an
owned commodity for another in a beneficial and special manner (Ramadan, 1987). Sales are
permitted, with supporting evidence from the Quran, the Hadith and Ijma’ (Laldin, 2006).
Sale may be partitioned into eight categories with respect to the two compensations and price:
1. Firstly, general sale (bay’ al-mutlaq), which is the exchange of a non-fungible for a
fungible. This includes the common example of selling goods in exchange for general
prices (Udovitch, 1967);
2. Secondly, exchange sale (bay’ al-muqayyadah), which is the exchange of one specific
non-fungible for another such as the exchange of a dress for an animal;
3. Thirdly, currency exchange (al-sarf), which is an exchange of one non fungible for
another, i.e. a general “price” for another;
4. Fourthly, bargaining or negotiation sale (bay’ al-musawamah), where the object of
sale is exchange for a price that is agreed upon by the buyer and seller;
5. Fifthly, forward sale (bay’ al-salam), that is the exchange of a liability as the object of
sale for a non-fungible as the price;
6. Sixthly, sale at a loss or below-cost sale (bay’ al-wadiah), that is the exchange of an
object of sale at a price below the price for which the seller bought it;
7. Seventhly, at-cost sale (bay’ al-tawliyah), which is the exchange of an object of sale at
the same price originally paid for it by the seller;
8. Eighthly, cost-plus sale (bay’ al-murabahah), that is the exchange of an object of sale
for a price equal to the original price plus a determined profit.
Furthermore, there are other types of historically known sales such as commission to
manufacture (istisna’) and the sale of fruits on the trees (bay’ al-daman). For the purpose of
this paper, only two types of sale will be discussed, namely bay’ al-salam and istisna’.
It is one of the basic conditions for the validity of a sale in Shari’ah that the object must
be in the physical or constructive possession of the seller (Weeramantry, 2001). This
condition has three ingredients; firstly, the object must exist, secondly, the seller should have
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acquired the ownership of the object and thirdly, mere ownership is not enough, meaning that
it should have come into the possession of the seller, either physically or constructively. If the
seller owns an object, but he has not taken its delivery himself or through an agent, he cannot
sell it (Petersen and Rajan, 1997).
However, there are only two exceptions to this general principle in Islamic Jurisprudence.
The first exception is bay’ al-salam and the other exception is istisna’. Both are sales of a
special nature and in this paper the concept of these two kinds of sale and the extent to which
they can be similar or different will be expounded.
Bay’ al-salam is a sale of an object, which is not available at the time of the conclusion
of the sale, but will be delivered in the future on a fixed future date. The price is, however, to
be paid immediately during the session of the contract. In other words, the transaction is
called bay’ al-salam, when it is a sale for an agreed price with immediate payment for a
determinate thing, to be delivered in the future on a fixed date (Nawawi, 1999).
In other words, salam or salaf is the sale of a deferred item in exchange for an immediate
(forward) price. It is the sale of a liability whose characteristics are described in exchange for
a price or capital-sum paid in advance. The Maliki school defined bay’ al salam as a sale in
which the capital-sum (price) is paid in advance and the object of sale is deferred to a
specified term. Whereas, the Shafi’i and Hanbali school defined the forward contract as a
contract over described merchandise sold as a deferred liability on one party, in exchange for
a price that is received during the contract session.
Bay’ al-salam was allowed by the Holy Prophet Muhammad s.a.w. subject to certain
conditions. The basic purpose of this sale was to meet the needs of small farmers who needed
money to grow their crops and to feed their families up to the time of harvest. After the
prohibition of riba, they could not take usurious loans. Therefore, it was allowed for them to
sell the agricultural products in advance (Usmani, n.d.).
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2.0 TYPES OF BAY AL-SALAM
The salam contract may be divided into two types which are ordinary salam and
parallel salam. Ordinary salam is a normal salam contract which is discussed by jurists and
scholars in classical fiqh books. It is a type of contract in which the seller undertakes to
deliver the commodity to the buyer at a future date. The price is fully paid in advance. So, it
involves only two contracting parties: the buyer and the seller just like any other ordinary
contract.
While in parallel salam, It is not allowed for the buyer in salam contract to sell the
commodity before he takes possession of that commodity. However, it is allowed for buyers
in salam contracts to make a parallel salam contract for the same goods. The following two
conditions must be observed in this type of arrangement. First and foremost, there must be
two independent and separate contracts. They cannot be tied up in a manner that the
performance of one contract is dependent on the other. For example, if A purchased 100 tons
of rice from B through a salam contract. The rice will be delivered on a future date (say: 30
May 2018). Now A can enter into another salam contract with C in which he sells the same
amount of rice at the same date. This parallel salam transaction is permissible with the
condition that delivery of rice to C would not be conditioned on delivery from B. In other
words, A has responsibility to deliver the 100 tons of rice to C on due date whether he gets
the rice from B or not. A cannot make an excuse if B fails to provide him the commodity on
the due date.
The second condition for parallel salam arrangement is that it cannot be used for a
buy back facility. In other words, it is not allowed that the seller in the first contract is the
buyer in the second contract. This facility of parallel salam is only allowed for third parties.
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3.0 VALIDITY OF BAY AL-SALAM
The validity of bay' al-salam is based on the main source of Sharia, which is Al-Quran
and As-Sunnah Nabi Muhammad SAW.
First is the Qur'an where the contract Bay’ salam is particularly referred to in the
following verse "O you who believe, when you carry out a business with a debt that is given a
certain period of time, then you should write that (debt and the time of payment).."
(Al-Baqarah:282). This verse is used as proof that it is permissible to buy and sell Salam
according to the Sharia because it is included in the type of debt. The verse accepts and
authorises debt, thus buying and selling Salam is also permitted. As long as the properties of
the goods are clearly known and are in charge and the buyer believes that the order will be
fulfilled by the seller, then it is included in the requirement in verse 282 of the said surah
al-Baqarah. The second, the proof of Bay' al-Salam can be seen in the Hadith that Ibn Abbas
narrated that the Messenger of Allah came to Madinah, and found its inhabitants using
forward (salam) contracts in fruits for one, two and three years. He said “Whoever enters
into a forward contract, let him specify a known volume or weight, and a known term of
deferment” (Hadith narrated by al-Bukhari and Muslim).
Besides, the validity of this has been observed by secondary sources such as ijma'
(consensus of Scholars), qiyas (analogical deduction) and others, it is stated that there is
general agreement with the salam's permissibility in the fiqh's books. Ibn Mundhir says: “All
the scholars whose opinions we have memorised agreed that forward contracts (salam) are
permissible and acknowledge people’s need for this contract.” However, there are two
opposing viewpoints regarding the Qiyas (analogical deduction). One group held the opinion
that salam was legislated against qiyas and as an exception to the fundamental prohibition
against selling property one does not own. The second group views bay' salam as being in
accordance with qiyas and not in any unusual circumstances. For this group, a bay' salam is a
separate contract from a bay' ajil (deferred sale), in which the price, the commodity, or both
are postponed or deferred.
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4.0 CONDITIONS OF BAY AL-SALAM
In the contract of al-Salam there are several conditions. In the book al-Fiqh
al-Manhaji there is mention of the conditions of Bai' al-Salam, among which the first is that
the item must be able to express its nature and characteristics. Where the goods are not mixed
with other goods of different types. If the content and rate of each mixture can be known, the
sale and purchase of salam is valid, if the content of the mixture cannot be clearly known,
then the sale and purchase of salam is invalid.
Next, the second is that the item is able to be delivered, based on the specified period
and type where the specified weight and type will exist at the specified time. If the sale and
purchase of Salam involves goods that do not normally exist at the specified time, for
example grapes in winter, dates, or the like, then the sale and purchase of Salam is invalid. If
the goods sold by Salam are easily available but cannot be obtained at the appointed time, the
agreement (al-Salam) is not void. The buyer can make a choice either to wait until the
ordered goods exist or to cancel the agreement and take back the capital or the price paid,
without more or less.
In addition, the third is that the place of delivery should be determined. It depends on
a mutual agreement between buyer and seller where the period of submission shall be limited
to a specified period communicated together. For example, the buyer says "I hand over RM
1,000.00 for 10 shirts with the following specifications on the condition that you hand over
the goods to me after one month from the date of this contract or at the beginning of the
following month". If there is no set period or if there is a set period but it is not specified
precisely, for example, the buyer says, "The goods must be handed over when the individual
returns from his trip". So this contract is not valid because the period here is not clearly
stated. This is because the exact time that the individual will return is unknown. As a result,
there will be disagreements and disputes about the period intended by both parties. If the
seller brings the ordered goods before the specified period, the buyer can take the goods,
provided that there are no expenses or burdens that need to be borne during the remaining
agreed period. The buyer also has no reason not to accept it. However, if the item has a
legitimate reason for the buyer not to receive it earlier than the set time, such as when there is
a case of robbery and the buyer is worried about the safety of the item, Then the buyer cannot
be forced to accept the goods, and he has the right to reject them.
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5.0 OPINIONS OF BAY AL-SALAM
Salam sale is permissible according to the Quran and the Sunnah. It is a kind of sale
where delivery of the sold item which is called Muslam Fih is deferred, while the price is
paid in advance which is called ra’s-ul-mal. It is the reverse of a sale with deferred payment,
which jurists defined as a sale of prompt payment for a deferred receipt. Salam contract
contains the same conditions of sale contract, but has its own special characteristics, which
are the following, the price for the goods to be delivered later must be received by the seller
at the place of concluding the contract. If the two parties to the contract left the place where
the contract was made before receipt of the price, then the Salam contract is void. This is the
opinion of the majority of the jurists.
Delivery of the goods sold must be postponed for a definite fixed time. Immediate
receipt of the goods in Salam sale is not allowed by the majority of jurists because of the
saying of the Messenger of Allah PBUH, narrated by Ibn Abbas : “Whoever enters into a
contract of Salam must effect the Salam according to specified date of delivery”. The Shafie
School is of the opinion that the Salam goods can be delivered immediately or at a later date.
The Shariah board agrees with the opinion held by the majority of the jurists because it is
supported by the strongest evidence. Also the shariah board agrees with the opinion of the
Maliki School in recognizing the possibility of postponing receipt up to the time when the
crop is harvested.
The goods to be delivered must be of a type that is commonly available at the later
time fixed delivery. This is a condition that finds consensus, since the goods to be delivered
later on must be available for delivery at the specified time, otherwise the prohibited Gharar
(uncertainty) would rise. The majority of the jurists do not stipulate the condition of the
actual presence of the goods subject of the Salam at the time of the contract or after it, before
the time specified for delivery. It does not matter if goods are not available at the time of the
contract or if they are out of stock for a given period between the time of the contracting and
the time of delivery. The Hanafi School differs, since they make it a condition that goods
subject to Salam sale must be available on the market from the time of contracting up to the
time specified for future delivery. The Shariah committee has chosen to follow the ruling of
the majority of jurists.
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6.0 APPLICATIONS BAY’ AL-SALAM
Scholars have proposed several Bay’As-Salam models for the financing of the
agricultural sector. In ISRA (2012) model, Islamic banks can enter into two independent
parallel bay’ as-salam, one with a farmer to buy agricultural products that will be delivered in
the future and salam contract with a wholesaler or broker to sell the product obtained from
farmers. Then, a bank will buy the commodity at a lower price from the farmer and sell the
same commodity at a higher price to a wholesaler or broker. The difference between the two
prices would constitute the bank’s profit. The shorter the time left to maturity, the higher
would be the price. However both transactions should be independent of each other.
1. The bank enters into a Salam contract with the seller and pays cash in credit in full for
the commodities that will be delivered on an agreed future date (say 7,000 kg of
cotton that will be delivered on 31 december)
2. The bank enters into a parallel salam contract with the buyer to sell the commodities
specified in the first salam.
3. The commodities are delivered to the bank.
4. The commodities are delivered to the buyer.
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6.1.2 APPLICATION OF SALAM IN ISLAMIC FINANCE
A Salam contract is typically used in short term financing, but could also be employed
for a longer term of financing. The salam and parallel salam are among the most effective
financing tools available for IFIs, particularly in providing microfinancing services for small
and needy farmers. It is an appropriate mode of financing for seasonal agricultural production
in which lies the benefit for both contracting parties which is the bank and the farmer (seller).
By entering into a salam contract in which the payment is made on a spot basis, the bank can
bargain with the farmers for a price less than the market price or the deferred price. In parallel
salam, the bank can also safeguard itself from the buyer’s default risk as the payment is
received on a spot basis. In salam or a parallel salam, the seller on the other hand, has the
funds to enable him to produce the commodities according to the quantity and quality
specified by the buyer. An example of a salam based agricultural financing is explained
below, where instead of full payment, hamish jiddiyah is received from the buyer.
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1. On 1 January 2016, the farmer executed a salam contract with the bank to sell a
specified amount of vegetables that will be delivered on a future date (on 30 june
2016). The contract also specifies the location of delivery.
2. The bank pays MYR10 million on a cash basis at the time of contract (in advance
before receiving the vegetables).
3. The bank enters into a promise with the customer in which the customer undertakes
that it will purchase the vegetables from the bank for MYR 15 million on 30 June
2016. To secure the contract, the bank takes MYR5 million as hamish jiddiyah from
the customer.
4. The farmer supplies the specified vegetables to the bank on 30 June 2016. The bank
informs the customer to execute the sale and take delivery by paying the remaining
MYR 10 million of the sale price.
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7.0 DEFINITION OF BAY AL-ISTISNA
Literally the word istisna’ is a derivative from the root word sana’ or to manufacture or to
construct something. Istisna’ is an order or request to manufacture something, whereby the
requestor invited, induced or caused another to make or manufacture some goods for him.
Technically, it is a contract to purchase for a definite price something that may be
manufactured later on according to agreed specifications between the parties.
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8.0 TYPES OF BAY AL-ISTISNA
Istisna is a special type of sale where the subject matter is transacted before it comes
into existence. It is an exceptional contract from the general rules of sale like a salam
contract. Because, in both salam and istisna’, the seller sells the commodity before he takes
the ownership or possession of it.
The istisna’ contract can be categorised into two types which are classical istisna’ and
parallel istisna’. The classical istisna’ contract has been discussed by jurists and Shariah
scholars in fiqh literature. This type of istisna involves only two contracting parties namely
the buyer (also known as mustasni) and the seller (also known as manufacturer). The classical
istisna’ has the following mechanism:
The parallel istisna’ contract involves three parties and It consists of two separate
contracts. The first contract is between the ultimate purchaser (customer) and the seller
(Islamic bank), where the Islamic bank as seller is responsible to deliver the asset to the
customer according to given specifications. The second istisna’ contract is between the
Islamic bank (as buyer) and the manufacturer of the asset. The following steps are involved in
a parallel istisna’ contract.
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3. The Islamic bank (buyer) enters into the parallel istisna (second istisna’) contract with
the contractor to construct the asset (house) as per the agreed specifications with the
customer.
4. The Islamic bank pays the cost of construction to the contractor in the second istisna’
contract.
5. After the completion of the manufacturing process, the Islamic bank delivers the asset
to the customer (ultimate buyer) upon the delivery date. Sometimes, the Islamic bank
appoints the contractor as its agent to deliver the asset to the customer on its behalf.
6. The customer pays the price of istisna’ asset to the Islamic bank in the form of
instalments or lump sum according to their agreement.
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9.0 VALIDITY OF BAY AL-ISTISNA
Istisna' is one of the instruments of the Islamic financial system that was created and
officially introduced by Bank Negara Malaysia by issuing a special policy that Islamic
financial institutions can use as an example when providing Istisna' funding. Istisna' finance
is a legal financial tool that complies with Islamic law. Istisna' financing is a financial
instrument that complies with Shariah and can be used. Among the Shariah sources that are
referred to and used as a guide are Al-Quran, Sunnah (Hadith) and Al-Ijma.
First is the verses of the Quran as follows “…whereas Allah SWT has permitted
trading and forbidden usury…” (Surah al-Baqarah: 275). According to the verse from Surah
Al-Baqarah that was just given, it is obvious that while God forbids his slaves from practice
in usury, he permits and approves of the activity of buying and selling. Istisna' provides an
opportunity for the construction industry to avoid and abandon Allah's prohibition, which is
the riba system in the conventional financial system that is often used as the basis for
financing construction projects in Malaysia. One of the principles that is at the core of Islamic
finance and also Istisna' itself is that there is no usury element in all Islamic financial
transactions.
Second, Istisna has also been proven in the hadith as Islamic finance that can be used
as financing that complies with the parts of Shariah that have been stated and recorded for use
as a guide for every level of society. It can be seen that "According to Anas RA, that the
Prophet S.A.W. wanted to write a letter to the king of Rome, then he was informed that the
king of Rome does not accept letters that are not stamped. So he gave the order to make a
silver stamped ring. Anas recounted “as if right now I could see a white glow in his hands".
(Hadith Muslim History). The prophet's action provides evidence that an Istisna’ firm
contract is a valid contract. Next is Al-Ijma'. Some scholars stated basically Muslims actually
agreed to create a consensus (ijma') that the contract of Istisna' is a valid contract and has
been carried out since time immemorial without any friend or scholar denying it. Therefore,
there is no reason to prohibit it.
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10.0 CONDITIONS OF BAY AL-ISTISNA
Based on the Prophet's Hadith, which permitted the sale of future products, bay'
al-salam and istisna have been approved. Because it was common practice in the business
world and fulfilled the demands of the public, all Muslim jurists approved of such a
condition. However, there are certain rules and conditions that apply to Bay' Al-Istisna.
In relation to the requirements of Istisna', there are conditions that can decide whether
or not the sale or purchase of Istisna' is legal. For Istisna' to be real, three conditions have
been established by Hanafi scholars where the contract of Istisna' is considered as invalid if
any one of these three requirements is not completed. The conditions are that the product of
Istisna' must be clear, of good quality, including its price and nature in order for it to be valid.
Next, the ordered item is a commonly used item. Lastly, it is not allowed to set a time.
For the first one, the product of Istisna' must be clear, of good quality, including its
price and nature in order for it to be valid. The contract of Istisna' will be invalid if any one of
these conditions is not fulfilled. This is because the item acts as a sale or buy item that needs
to be explained. When a person or buyer orders a product, the seller is required to fully
explain the product's specifications, including its material, kind, shape, nature, quality, and
other factors. Such issues will lead to disagreements between the parties involved in the
transaction if they are not fully disclosed.
Second, the ordered item is a commonly used item. The items that are ordered in
Istisna refers to the items that are must frequently used for necessities and frequently used by
the community, such as clothing, homes, automobiles, furniture, and other things. This shows
that the ordered item is not a strange, difficult-to-identify item that has no place in human
life, actually it should be a product that is readily available.
In addition, it is not allowed to set a time. In Istisna transactions, both the seller and
the buyer are prohibited from arranging and ensuring a specified time for the delivery of the
ordered goods. According to Abu Hanifah's view point, if the delivery of the ordered item has
a set period, then it will be categorised as a sale and purchase agreement.
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11.0 OPINIONS OF BAY AL-ISTISNA
They have also decided that the manufacturer may purchase what others have
manufactured and hand it over to the party who ordered the manufacturing if it satisfies the
required specifications. He is not duty-bound to manufacture it himself. Nowadays Istisna has
grown in importance, its scope and applications have varied, and the need for it grew
proportionate to contemporary industrial progress and with the diversification made in the
field of industry in this century and the past century which prompted the need for new
methods of investment compatible with shariah.
Istisna contract is permissible for any manufactured product that have particular
specifications whether it is of use or consumer items, provided that the manufactured item is
sufficiently described in Istisna contract to the extent that avoids ignorance and ambiguity
and a particular due date is set for its manufacturing and delivery. The price may either be
paid in advance, deferred or in instalments.
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12.0 PRODUCT OF BAY AL-ISTISNA
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6. What if I fail to fulfil my obligations?
● Compensation (Ta’widh):
During financing period The compensation rate that shall be applied is 1% p.a. on
the overdue amount.
Upon expiry of financing The compensation rate that shall be applied is the Bank’s
period current Islamic Interbank Money Market (IIMM) Rate
on the principal balance.
● Right to set-off: We have the right to set off any credit balance in your account
maintained with us against any outstanding balance in the financing amount.
*Note : List of coverage that could be financed by BMMB together with the financing
amount.
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13.0 APPLICATION OF BAY’ AL-ISTISNA
e asset as per the specifications agreed with the customer.The classical Istisna contract
has been thoroughly discussed by previous scholars in Islamic Jurisprudence literature. This
type of Istisna involves only two contracting parties, namely the buyer as mustasni and the
manufacturer as sani.
1. The customer requests the manufacturer to construct for him a specified asset for a
price agreed upon, payable over a pre-agreed period of time or on a cash basis, to be
delivered on the stipulated date.
2. The customer pays the agreed price of the asset to the manufacturer either by
instalments or on a cash basis.
3. The manufacturer delivers the completed asset to the customer on the stipulated date.
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13.1.1 APPLICATION OF PARALLEL ISTISNA
Parallel Istisna consists of a series of two separate Istisna contracts whereby the first
Istisna contract is between the ultimate purchaser (customer) and the seller (bank) where the
seller is responsible for delivering the specified asset to the purchaser. The second Istisna
contract is between the seller (bank) and the manufacturer/contractor of the asset.
1. The customer (mustasni) enters into the first istisna agreement with the bank in which
the bank is appointed as the contractor (sani) of the asset. The contract price is
determined as the bank’s cost plus profit margin. The bank appoints the customer as
its agent to find a contractor (second contractor) to construct the asset on its behalf.
2. The bank (as mustani) enters into the second istisna agreement (parallel istisna) with
the contractor (second contractor) (sani) to construct th
3. The bank pays the cost of construction to the contractor in the second istisna
agreement.
4. The customer makes payment of the first istisna agreement on a deferred payment
basis.
5. The bank appoints the constructor as its agent to deliver the istisna asset to the
customer upon its completion on the agreed date.
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13.1.2 APPLICATION OF ISTISNA IN ISLAMIC FINANCE
1. The customer requests the bank to construct a specified asset. The contract price
consists of cost to the bank plus its profit margin, payable by the customer on a
deferred payment basis. Both the customer and the bank signs a sale agreement based
on the Istisna contract (Istisna Sale Agreement (ISA)) in which the customer acts as a
buyer (mustasni) and the bank acts as a manufacturer (sani).
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2. The bank delegates the customer to appoint a contractor on its behalf to construct the
asset as specified in the ISA. The contract price is determined by the bank which is
payable in instalments.
3. Both the bank and the contractor sign a purchase agreement based on an Istisna
contract (Istisna Purchase Agreement (IPA)) whereby the bank is mustasni’ and the
contractor is sani’.
4. Upon completion of construction of the asset, the contractor as sani in the IPA will
deliver the asset to the bank (mustasni). The bank then as sani, as in the ISA, will
deliver the asset to the customer (mustasni). The contractor with the authority from
the bank may also deliver the asset directly to the ultimate purchaser (customer).
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14.0 DIFFERENCES BETWEEN SALAM AND ISTISNA
There are few things that can be highlighted to differentiate between Bay-al-Salam
and Bay-al-Istisna contracts.
The first is the subject matter of istisna contract is always a thing which needs
manufacturing. However, the subject matter of salam can be anything as long as it’s
measurable and quantifiable. No matter whether it needs manufacturing or not. Second, Bay’
al-salam contract is binding on both parties and may only be voided by mutual agreement. On
the contrary, istisna’ is not binding and may be voided by either party. Where the contract of
salam cannot be simply cancelled once it is executed. However, the contract of istisna can be
cancelled by one party before the manufacturer starts his work. If the manufacturer gives the
commissioner permission to manufacture the produced item, he loses his option but the
buyer retains it.
Next is the third which is the payment of the full price to the seller in advance is a
required condition of a salam contract. However, it’s not an obligatory requirement in istisna
transactions. It’s up to the agreement of the contracting parties whether they settle the price in
advance or in instalments or after the delivery of the commodity. Besides that, the fourth is
it’s necessary in salam contract that the time of delivery must be fixed, otherwise, the salam
contract becomes invalid. However, the contract of istisna is not obligatory for contracting
parties to fix the time of delivery. Any penalty for charged late delivery can reduce the price
of an Istisna contract but in a Salam, the penalty sum is given to charity instead of being
considered a benefit to the buyer.
Lastly is the purpose of the Salam is to make the seller responsible for performing
their obligation to fulfil the commodities such as, the products should be fungible, or easily
replaceable on the open market, in case the seller is unable to do so. Under the Istisna, the
asset manufactured must meet specification of the order and the buyer has the right not to
take possession of the asset if the specifications are not met.
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15.0 CONCLUSION
From the explanation that has been described above, we can conclude that the bay'
al-salam contract is an immediate price exchange for a pending sale object, where the
contract is set through an overview as a responsibility on the seller of bay' al-salam. The bay'
al-salam object does not exist at the contract session and its delivery is deferred to a certain
future period of time.
Whereas, the istisna contract is a contract between the buyer and the worker, where the latter
provides raw materials. The condition of this contract is that the specification of goods must
be made in sufficient detail to avoid misunderstandings. Pillars and conditions of istisna'
following bai' al-salam. Only in bai' al-istisna' payment is there no demand for payment in
cash, and there is no set period for delivery of the items. Instead, delivery is contingent upon
the overall completion of the goods.
In summary, this explanation has given some an overview about the resemblance
and disparity between bay’ al-salam and istisna’. Although it does not reflect the
broad-spectrum of the concepts, at least it contributes something important by adding
more reading regarding these two types of sale.
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16.0 REFERENCES
2. PRODUCT DISCLOSURE SHEET (PDS) Read this Product Disclosure Sheet before
you decide to take up Muamalat Home Financing (Istisna. (n.d.). Bank Muamalat.
https://www.muamalat.com.my/downloads/consumer-banking/Home-financing-istisna
'-v3.1.pdf
https://blossomfinance.com/posts/introduction-to-manufacturing-sale-contracts
4. Financing : Bai Salam. (n.d.). Islamic Bankers Resource Centre. Retrieved October
https://islamicbankers.me/islamic-banking-islamic-contracts/in-focus-bai-salam/
https://bankingarticle.blogspot.com/2011/02/investment-modes-mudaraba-mudharaka
-bai.html
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