A study of al-istisna` with special reference to current practices in Malaysia

Abstract

The present Islamic financial system in Malaysia is growing faster than expected. The plan to upgrade the target of Islamic banking assets up to 20% by the year 2010, under the Master Plan of 2001 Bank Negara Malaysia, has lead the banking and finance industries to produce more Sharī‛ah-compliance products and instruments. The existence of these various products and instruments, whether in the form of deposit, financing, trade finance, money market and credit card, are all based on the diverse Sharī‛ah principles. It also depends on policy or business planning of each financial institution. Indeed, it is a positive development because it will definitely support the growth of Islamic financial in Malaysia. However, it is vital to ensure the application of the products and instruments fulfill the requirements and following the right methods of Islamic law. Therefore, this thesis is intended to discuss one of the financing products, which has been popularly adopted nowadays. This financing product is based on the principle of al Istisnā‛. As a matter of fact, al Istisnā‛ contract is a new debt-financing concept, proudly launched by Islamic financial institutions in Malaysia. Since 1999, various financiers have offerred al Istisnā‛ contract as their debt-financing product, especially for manufactured goods or uncompleted assets. It includes houses and projects construction, and to some extent, the fixed assets for construction purposes. Nevertheless, behind this entire scenario, there are too many loopholes identified, especially during the early or preliminary stage of the implementation. For example, since it involves things which are not in existence at the time of contract, therefore, making the application of al Istisnā‘, completely inevitable. This is to avoid any buying and selling of things which do not exist based on normal sale contract. Thus, without a proper distinctive measure of evaluations, rectification and modifications, all parties involved may undeniably be legally affected. This research is carried out via theoretical and fieldwork approaches. It includes analytical research, comparative approach, data collection and data analysis methods. In summary, some Islamic financial institutions which are aware of these shortfalls and failures through their Sharī‛ah consultants have taken the necessary actions with the aid of rectifying and improving the situation. In addition, related suggestions and recommendations of relevant authorities, organization, academic institutions and financial or banking institutions will be provided. This research will emphasize on the application of al Istisnā‛ contract as an alternative and appropriate solution for present and future plans. Finally, the researcher strongly feels that it is not impossible to witness the future prospect of al Istisnā‛ contract as being the best, most appropriate and most viable mode of debt-financing particularly, for manufactured and the uncompleted assets