Understanding Islamic Finance - Doha Academy of Tertiary Studies

276 Understanding Islamic FinanceBox 10.14:(Continued)3. B enters into an Istisna‘a agreement with A for the supply of garments of a specifiednature for Rs. 100 million within a period of three months. This contract will be asale; A will make delivery at the agreed time.4. B also appoints A its agent for export of the garments when they come under itsownership.5. A foreign importer opens an L/C of value Rs. 110 million in the name of B (theL/C can also be in the name of A but that would be under an agency agreement). Ifan L/C has already been opened, Istisna‘a is not possible (avoiding Bai‘ al ‘Inah).6. A prepares the garments and informs B to take delivery; the bank takesactual/constructive delivery of the garments and henceforth the garments come underits risk/liability.7. A exports the consignment as agent of B, sending documents on behalf of B. B getsRs. 110 million, as per the terms of the L/C.Box 10.15:Parallel Istisna‘a for Building Project FinanceBuilderRs.120 MBankRs 100 MContractorDeferredSpotSale of Building(Flats or Offices)for Rs.120 MPlus ProfitReceivables assignedto BankHypothetical Case Study on a Building Project Financed through Istisna‘a:1. Builder A enters into an Istisna‘a agreement with bank B for the construction of 100economy flats within a period of 12 months, say up to 31/12/2007. The total cost isagreed at Rs. 120 million.2. A starts booking the flats and all the flats are booked with any amount of downpayment.