Understanding Islamic Finance - Doha Academy of Tertiary Studies

Forward Sales: Salam and Istisna‘a 2773. B enters into a Parallel Istisna‘a with contractor C for the construction of flats of thesame specifications against the total cost of Rs. 100 million up to the end of 2007and makes payment in four instalments, as per the agreement.4. B appoints A its agent to supervise the construction of flats, as per the agreedspecifications.5. C gives possession of the flats at the end of December, 2007 to B, which hands themover to builder A.6. A sells the flats to the allottees on an instalment basis and assigns the receivables tobank B.7. The allottees will make periodical payments for rental and purchase of units fromthe bank; ultimately, the ownership will transfer to the allottees.Box 10.16:Parallel Istisna‘a – Government ProjectsGOP/ Customer Rs.1200 Bank Rs. 1000 Million ContractorDeferredInstalmentsReceivables / Regular IncomeAssigned to the Bank1. Government G wants a road to be built and enters into an Istisna‘a contract underwhich bank B has agreed to build the road by the end of December, 2007 for Rs. 1200million, payable in instalments over ten years.2. B enters into a Parallel Istisna‘a with contractor C for building the road up to 31stDecember, 2007 for Rs. 1000 million and pays the amount in four equal instalments.3. C hands over the road to B on 31st December, 2007. Use of the road starts againstthe payment of tolls.4. G assigns the toll receipts to the bank, and in the case of a shortfall, pays rentalaccording to the agreement.