Istisna’ Contracts Financing: Jurisprudential Rulings and Banking Risks

Abstract

The Istisna’ contract now is an important practice in the Islamic banking industry. Yet, the development of such industry has exposed it to several risks, urging officials and specialists to highlight the policies and procedures that achieve banking safety. Since risks are mainly related to the financing activity, and are particularly important when the risk study is part of the financial decision-making, and since Istisna’ financing is now facing serious risks that financial institutions should address, this paper discusses such risks, and ways to manage and address them. The study concludes with several findings. Most importantly, Islamic banks are exposed to several risks stemming from the nature of their financing activities; this requires finding Sharia-oriented tools that can be used to hedge such risks.