Working Capital 67Istisna’a
Another potential solution to providing Shari’a-compliant WCF-1 needs may
be achieved through the use ofistisna’a.Istisna’a is a manufacturing
contract in which goods are produced on order by the supplier or seller,
according to very precise specifications of quality and quantity given by the
buyer. By implication, a wide range of raw material and other inventory/
stock needs of businesses may be fulfilled this way, including most durable
goods and commodities. Typically, the bank will enter into two parallel
istisna’as. In the firstistisna’a, the bank would be the seller, and the client
the buyer; and in the secondistisna’a, the bank would contract with the
eventual producer of the raw material or inventory to supply the required
items. An important consideration is that the goods should not already have
been produced.
Additionally, in order to help minimize the subsequent likelihood of
dissatisfaction of the client when the bank delivers the required goods to it
in the firstistisna’a, the bank may ask from the outset that the client itself
recommends various producers/suppliers of choice, from amongst whom the
bank will select one. In other cases, the bank may appoint the client (who is
the buyer in the firstistisna’a) as its agent in the secondistisna’a, charged
with the task of ordering the goods and inspecting them once they arrive on
behalfofthebank,toascertaintheyfulfilthenecessaryqualityspecifications.
Again, the aim is to ensure the goods supplied are to the precise satisfaction
of its client.
A particularly useful benefit ofistisna’apurchases relates to the unique
flexibility with regard to the mode of payment made to the supplier. Thus,
virtually any payment arrangement may be structured that is mutually
acceptable to the buyer and the seller with respect to the payment of the
istisna’aprice. For example, payment could be made in a lump sum upfront,
a lump sumex post, via instalments beginning in advance of delivery, or at
any other time acceptable to both parties. In the context of WCF, a payment
schedule based on instalments starting after delivery of the goods is likely
to be the option of choice of the buyer, which is the business seeking WCF.
Ijara
Carrying on with WCF-1, it is also possible to use the contract ofijaravia
the application of “ijara muntahiya bit tamleek” (which translates to “lease
of an asset, culminating in ownership by the lessee”) to address certain
WCF-1 needs, particularly relating to durable goods. Here, the bank
purchases the asset needed by the business, and then provides the same on
rent to the business on lease for a certain duration. The lease payments are
structured in such a way that by the end of the lease period, the bank
receives the price it paid for the asset, plus its expected profit. Hence when
the lease term expires, the bank sells the asset to the business at a nominal
price, and thereby transfers ownership to the client, which is the primary