Istijrar means purchasing goods time to time in different quantities. In Islamic jurisprudence, Istjrar is an agreement where a buyer purchases something from time to time; each time there is no offer or acceptance or bargain. There is one master agreement where all the terms and conditions are finalized. There are two types of Istijrar:
- Whereby the price is determined after all the transactions of purchase are complete.
- Whereby the price is determined in advance, but the purchase is executed from time to time.
The first kind is relevant with the Islamic mode of financing. This kind is permissible with certain conditions.
- 1. In the case where the seller discloses the price of goods at the time of each transaction; the sale becomes vaIid only when the buyer possesses the goods. The amount (price) is paid after all transactions have been completed.
- 2. If the seller does not disclose every time to the buyer the price of the subject matter, but the contractors know that it is being sold at market value and the market value is specified and determined in such a manner that it does not vary and does do not lead to differences of the contractors, then the sale would be void.
- 3. If at the time of possession, the price of the subject matter was unknown or the contractors agree that whatever the price shall be, the sale will be executed. However, if there is significant difference in the market price and the agreed price, it may cause conflict. In such a case, at the time of possession, the sale will not be valid, rather the sale will be valid at the time of settlement of the payment.
The validity will relate to the time of possession. Therefore, the ownership of the buyer in the subject matter will be proved from the time of possession. After the payment of price, the buyer’s usage of the subject matter will be valid from the time of the possession.
Uses of Istijrar
The concept of Istijrar can be applied in Murabaha in the following manner:
The bank may use the concept of Istijrar for purchase of goods from suppliers and then to sell them based on lstijrar with some amount of profit on deferred payment basis. This product will work suitably when the bank purchases the goods directly from the supplier and then sells them to the buyer. As in this case, the goods will be in the ownership as well as in the risk of the bank till it sells them to the buyer, so that makes the contract of sale valid and earning profit on such a transaction will be permissible (Halal).
Conversely, if the bank appoints the buyer as its agent to procure the goods, and he purchases them from time to time and utilize them, then it would not be possible to ascertain the point at which the ownership and the risk of the goods passed to the buyer. To make an Istijrar a viable product, following mechanism may be used:
- 1. The bank enters an lstijrar agreement with the purchaser to sell different commodities to the extent of some specified (say X amount) limit on a cost plus some profit basis.
- 2. The purchaser sends a purchase requisition letter to request the purchase of specified commodities.
- 3. Simultaneously or just after signing the Istijrar agreement with the purchaser, the bank agrees with the supplier either to purchase the goods on normal spot / credit payment basis or the bank may also enter a parallel Istijrar agreement to purchase the goods on market prices whereby, the payment may be made in advance or after the delivery.
- 4. After receiving the purchase requisition from the customer, the bank sends a purchase requisition letter to the supplier to order him to deliver the goods to the bank or its authorized representative or ask him to deliver them to the purchaser's premises on bank's behalf. After taking possession of the good and making the supplier its agent to deliver the goods to the customer, the goods will remain in the ownership and risk of the bank.
It should be noted that a template purchase requisition letter should be prepared in such a way that it completely mentions the specifications of the goods. A confirmation letter should also be sent from the supplier to the bank and then from the bank to the purchaser describing all details of the goods and their prices, to avoid any ambiguity in the subject matter as well as in the price that may lead to any dispute.
By: Dr. Muhammad Imran Ashraf Usmani