Islamic Finance – Islamic Capital Market – Istisna bond
Bonds of Istisna The Istisna' bond, used in Malaysia, has been modelled after the same idea. Istisna' is essentially a buy order contract for a future-delivery of an asset. The asset's selling price, delivery date, and method of payment can all be agreed upon by the buyer and seller. Due to the fact that the financier (investor) is neither the contractor/manufacturer nor the final user/buyer, parallel Istisna' appears to be more practical in contemporary Islamic finance than simple Istisna'. This is because, as was already discussed in chapter one. The (ultimate) buyer, the financier, and the manufacturer must all be autonomous participants in a parallel Istisna' arrangement. Sukuk Istisna, a Malaysian custom, is founded on two parties. Therefore, it remains subject to a "Inah contract," which is not recognised globally. In accordance with this arrangement, the project owner or party that has been granted a construction contract (the issuer) will engage into an Istisna' sale contract with the investors for a price of "x," which is payable either up front or dependent on the project's progress. This sum is equal to the quantity of financing that the issuer needs. The issuer will sell a good (to be supplied in the future to investors) at a price of "x" under the terms of this first Istisna' contract. The investor(s) will then engage into another Istisna' contract to sell the same asset to the issuer at "x+y" to be paid in the future using Istisna' Sukuks/bonds, as required by the first Istisna' contract. It goes without saying that since this securitization is based on receivables, trading in securities derived from this structure is not permitted on a global scale. Global Shari'ah issues are also raised by the use of a "Inah contract" in this construction contract rather than a true parallel Istisna contract, which would involve three different parties.
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