Istijrar sale in Islamic law: A potential for Islamic finance practices

Md. Habibur, Rahman (2021) Istijrar sale in Islamic law: A potential for Islamic finance practices. In: FIFC 2021, 20-22 Mac 2021, Sunway University, Malaysia, Online.

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Abstract

Istijrar is a supply sale contract, in which the seller supplies the goods on a regular basis by instalments based on a pre-agreed contract with the buyer. For the subsequent supplies, no new offer and acceptance are needed and thus it resembles sale by conduct (bay’ al-ta’ati). Istijrar arrangement provides flexibility in price determination, as such the price can be calculated and paid even after consumption of the goods. This paper intends to study the legal status of istijrar sale in Islamic commercial law and to explore its potential in Islamic finance operations. This is a qualitative study and a method of discourse analysis has been followed to achieve the objectives. Both classical and contemporary literature along with different shari’ah resolutions have been consulted to accomplish this study. The study finds that istijrar sale has great potential for Islamic finance practices. Istijrar contract can be integrated with murabahah and ijarah facilities of Islamic banks. Besides,Islamic letter of credit can be structured with istijrar arrangement. The study concludes that apart from providing flexibility in price determination and settlement, istijrar contract facilitates to manage the price fluctuation in the market and helps to avoid uncertainty (gharar) in fixing the price upon the conclusion of the contract. Thus, istijrar contract can be embedded with an option to be operationalised as a derivative instrument for the purpose of risk mitigation.

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