Islamic Contract Under Trading Essay

1.0 Introduction

Nowdays, there are many Islamic banks in Malaysia which provide the Islamic contract.

There are three major types of Islamic contract such as participating contracts or contracts of profit sharing, trading contracts (immediate payment and deferred payment) and supporting contracts.

In this assignment, I will discuss about the contract under trading which is istisna’ contract. Istisna’ contract has been offered by many Islamic banks such as Bank Islam Malaysia Berhad, Maybank Islamic Berhad, RHB Islamic Bank, Bank Muamalat and etc.

In practice, the advantage of an istisna’ contract is that it can provide flexibility to the customer, where payments can be made in instalment linked to project completion at delivery or after

Deliver specified goods later

The diagram above known as simple istisna’, where it is assumed that the buyer has the required financing to directly coordinate with the manufacturer on the project. Once the manufacturer initiates the work, only changes can be done with mutual consent. The purchaser will make the payment as pre agreed schedule and the manufacturer will supply the assets or goods as per the specifications agreed. If the subject matter or goods does not conform to the specifications agreed upon, the customer or buyer has the option to accept or to refuse the subject matter.

1 ask for financing 2 Pay on behalf of customer

4 Transfer of ownership 3 Title

It involves three (3) parties such as the buyer, the Islamic bank and the manufacturer. The buyer can obtain financing or capital from the Islamic bank. The buyer asked the Islamic bank for financing and Islamic bank act as capital provider on behalf of customer or buyer and pay to the manufacturer. Later, the manufacturer will transfer the ownership of the asset such as house to the Islamic bank. The ownership of the house will belong to the customer when the customer had paid the full amount of the financing to the Islamic