A PRESENTATION ON

BAI MUAJJAL, BAI SALAM &

ISTISNA IN ISLAMIC BANKING:
CONCEPTS & APPLICATIONS
PRESENTED TO:
PROF. SYED HASEEB ZAIDI
PRESENTED BY:
FARIA ANWAAR (BS-HONS)
MOHSIN KHAN (BBS)
 Islamic banking is interest free banking, in which there is no fixed rate of return.
Islamic banking is the banking system which is run in accordance with the Islamic laws & the
Shariah board; that guides the institutions.
This Shariah board authorizes the products that whether these are Shariah
compliant or not. In particular, Islamic law prohibits usury, the collection & payment of
interest, also commonly called Riba in Islamic discourse. Islamic banking also finds its roots
in Islamic finance & all type of transactions are interest free & of risk sharing.
The interest is prohibited in Islamic ways of banking as it is also obvious from
Quran. In Quran, in Sura Al-Imran (3:130), Allah said that;
O you who believe! Do not devour Riba multiplying it over & keep your duty to Allah that
you may prosper
Same kind of prohibition regard fixed interest is also lead in Sura Al-Rum(39) , Al-Nisa
(160-161) & Al-Baqarah(275-281) of Quran.
ORIGIN & EVOLUTION OF ISLAMIC BANKING IN PAKISTAN
"We must work our destiny in our own way & present to the world an economic
system based on true Islamic concept of equality of manhood & social justice"
Quaid-e-Azam Mohammed Ali Jinnah
Opening Ceremony The State Bank of Pakistan July 1, 1948

The procedure of Islamization, the money related arrangement of Pakistan is

linked with the broadly reappearance of islamically managing an account in the late
seventies. Pakistan was among the three nations on the planet that has been attempting
to actualize Islamization at national level. This procedure began with presidential
request to the locality Council of Islamic Ideology(CII) on September 29, 1977. The
board was solicited to set up the plan from interest free monetary framework.
The gathering included specialists of investors & financial analysts who presented
their report in February 1980, featuring diverse ways & acceptable mild elements for
providing with the interest from the money related arrangement of Pakistan. This report
was a historic point in the happenings for Islamization in Pakistan.
 INITIATIVES TAKEN IN PAKISTAN
The islamically managing an account development in Pakistan was across the
country & complete. At this very moment an immense mission, the switch-over arrangement
was actualized in stages. The procedure was begun by changing the operations of
particular monetary institutions like National Investment Trust (NIT), Investment Corporation
of Pakistan (ICP), & House Building Finance Corporation (HBFC) to the framework fitting in
with the Islamic standards with impact from July 1, 1979.
Separate without interest counters began working in all the nationalized business
banks, & one remote bank from January 1, 1981, to prepare stores on benefit & lose
sharing premise. From that date, no bank in Pakistan, including outside banks, was
permitted to acknowledge any interest bearing stores. Every current store in banks was
dealt with to be on the premise of benefit & lose sharing.
To realize these changes Modes Of Islamic banking were introduced:
Bai Muajjal
Bai Salam
Istisna
 BAI MUAJJAL, ITS CONCEPT & DEFINITION
The term 'Bai-Muajjal' has been acquired from Arabic words ( & Bai'un
& Ajalun). The word means buy & deal & the word implies a settled time or
an altered period. "Bai-Muajjal implies deal for which installment is made at a
future settled date or inside of an altered period. So, it is a deal on Credit.
Bai-Muajjal can be described as an understanding between a Buyer & a
Seller. Under which the Seller offers certain specific items acceptable under Islamic
Shariah & Law of the region to the Buyer at an agreed pre-settled quality, payable
at a modified future date.
 APPLICATION OF BAI MUAJJAL
In Banks, Bai-Muajjal is managed as an assertion between the Bank & the Client under
which the Bank offers the items, gained by & determination of the Client, to the client at an
agreed worth payable at any settled future date in inconsistency entire or within a changed
period by adjusted bits.
In this manner it is a Credit offer of items by which obligation regarding stock is traded
by the Bank to the Client however the portion of offer cost by the Client is surrendered for a
settled period.
Bai Muajjal may be described as arrangement under which the expense of the thing
included is payable on a yielded preface either in full absolute or in segments. This structure
could be of huge use in banking current information essentials of industry & cultivating & also in
the banking of private & import trade.
A valid example, if the present cost of a sack of fertilizer to the bank is Rs. 50, the bank
may offer it through its masters to agriculturists obliging bank cash at Rs. 55 subject to honest
portion of this expense after an agreed period. The bank would of course pay Rs. 50 to its
administrators before or immediately after the supply of the fertilizer by the authorities under its
rules.
 CONDITIONS FOR BAI MUAJJAL
1. The cost to be paid must be agreed & fixed at the period of the procedure. It may
incorporate any measure of benefit without objections of Riba.
2. Complete/absolute ownership of the object being referred to must be given to the
purchaser, while the conceded cost is to be dealt with as obligation against him.
3. When the cost is settled, it can't be diminished in the event of prior installment nor
would it be able to be expanded if there should arise an occurrence of default.
4. With a specific end goal to secure the installment of value, the merchant may request
that the purchaser outfit a security either as home loan or as a thing.
5. In the event that the merchandise is sold on portions, the merchant may put a condition
on the purchaser that on the off chance that he neglects to pay any portion on its
expected date, the remaining portions will turn out to be expected promptly.
 BAI SALAM, ITS CONCEPT & DEFINITION
Rabb-us-salam: Buyer
Muslam ilaih: Seller
Ras-ul-maal: Cash price
Muslam fih: Purchased commodity
The term Bai-Salam has been taken from Arabic words "( & "Bai'un &
Salamun). signifies 'buy & sale' & the word ' " signifies 'advance'. 'Bai-Salam' means
advance buy & sale.
Bai-Salam may be described as an assertion between a Buyer & a Seller. Under
which the seller undertakes to supply some specific goods to the buyer at a future date in
exchange of an advance price fully paid at the time of contract. The item is passed on as
indicated by specific, size, quality, quantity at a future time in a particular spot.
Figuratively speaking, Bai-Salam is an arrangement whereby the seller grasps to
supply some specific Commodity to the buyer at a future time consequently of amount paid
on the spot. Here the expense is paid in genuine cash, however the movement of the
conveyance of the merchandise is agreed.
 APPLICATION OF BAI SALLAM
To address the issue of little farmers who need cash to develop their products & to
sustain their family up to the season of harvest. At the point when Allah announced Riba
haram, the ranchers couldn't take haram credits. In this manner Holy Prophet permitted
them to offer their agricultural items ahead of time.
To Address the issue of merchants for import & fare business. Under Salam, it is
taken into consideration that they offer the commodities ahead of time so that in the
situation of getting their money value, they can without much of a stretch embrace the
aforesaid business. Salam is gainful to the merchant in light of the fact that he got the cost
ahead of time & it was useful to the purchaser additionally on the grounds that typically
the cost in Salam is lower than the cost in spot deals.
The admissibility of Salam is an exemption to the general selections that disallows
forward deal & in this manner it is liable to strict conditions.
 CONDITIONS OF SALAM
1. It is essential for the validity of Salam that the buyer pays the price in full to the seller at the time
of affecting the sale. Without full portion, it will be comparable to offer of a debt against a debt,
which is expressly banned by the Holy Prophet. Other than the crucial knowledge for allowing
Salam is to fulfill the "minute need" of the trader. If its not paid in full, the major reason won't be
achieved.
2. Simply those items can be sold through a Salam contract in which the sum & quality can be correctly
decided e.g. profitable stones can't be sold on the reason of Salam in light of the way that each
stone differentiation in quality, size, weight & their exact subtle element is improbable.
3. Salam can't be influenced on a particular product or on a consequence of a particular field or
property e.g. Supply of wheat of a particular field or the result of a particular tree since there is
credibility that the harvest is obliterated before transport & given such likelihood, the movement
stays questionable.
4. Every single modest component in deference to nature of items sold must be expressly decided
leaving no instability, which may provoke an inquiry.
5. It is principal that the measure of the stock is settled upon altogether terms. It should be measured
or said something its common measure just, significance what is normally weighed can't be assessed
& the other path around.
 ISTISNA, ITS CONCEPT & DEFINITION
The word Istisna is taken from the word Sana'a which genuinely means "making,
assembling or building something". Istisna is an understanding between a producer/vendor
& a buyer under which the maker/merchant offers specific things ensuring to being
delivered, allowable under Islamic Shariah & Law of the Country in the wake of having
made at an agreed worth payable early or by segments within an adjusted period or
on/within a settled future date on the reason of the solicitation put by the buyer.
"As demonstrated by Ibn-Manzur, Istisna happens when some individual invited,
actuated or realized another to make the thing.
AI-Fayruzabadi says that Istisna happens when someone asked for something to be
made for him. The word Istisna has similarly been used as a piece of in the al-Qur'an &
al-Hadith.
 Truly, al-Kasani, al-Hanafi depicts Istisna as "when one requests a Craft-man to
set up a bit of furniture at a picked or restricted cost, to be gone on later or one
may hire a shoemaker to make a few shoes at a settled cost," or "an agreement on a
thing on obligation with the procurement of work" or "to request a maker to make a
particular stock in a particular manner".
The person who makes it is called Sani & the thing made Masnu, & the
individual who makes it be made mustani. Mustafa Ahmad al-Zarqa depicts Istisna as
a comprehension of offering a social event skillful thing with an attempt by the dealer
to present it made from his own particular material with exhibited depictions & at a
picked expense.
From the above examinations, it could be said that Istisna' is the giving of a
requesting to an expert or artisan to make a positive article with consent to pay an
explicit cost for that article when made.
 APPLICATION OF ISTISNA
The Islamic bank can use Istisna as a buyer by contracting with current & creating
foundations, or with any skilled worker to make or create for it a couple of things with
specific description. By then it can offer them after receipt, for cash, presented or
surrendered portion through Murabaha or channel' bi-thaman ajil. Thusly the Islamic
bank will be incorporated in direct theory.
Of course, this strategy is subject to the level of the position of the Islamic bank where
eventually some Islamic banks are not allowed to be incorporated particularly in
exchange. It is moreover drivable for the Islamic bank to enter Istisna contract in the
utmost of shipper to the people who demand the purchase of a particular thing.
By then it will draw a parallel Istisna contract in the point of confinement of a buyer with
another social occasion to make or create the item settled upon in the first contract. This
framework is most suitable to the demonstration of Islamic banks nowadays.
 CONDITIONS OF ISTISNA
The subject of Istisna is dependably a thing which needs manufacturing.
Manufacturer utilize his own material.
Quality & Quantity ought to be agreed in ultimate terms.
Purchase value should to be settled with mutual understanding.
In the case the products are prepared & available to be purchased, here Istisna is not
permitted in Shariah. At that point the deal may be done either in Bai-Murabaha or
Bai-Muajjal method of speculation. In this mode, conveyances of products are
conceded & installment of value may additionally be conceded.
It encourages the producer now & then to get the cost of the merchandise ahead of
time, which he may use as capital for creating the products.
 CONCLUSION
The above examination can be safely considered that Bai Muajjal, Bai Salam
& Istisna contract in Islamic Commercial Laws are one of the basic schedules for
awareness of Islamiclly managing an account & can accept a sharp part in financial
change. It engages the enthusiasm for gathering items, banking monetary activities,
adding to the values of expenses of created stock, pushing current & resourceful
progress & making use of the available possible results of the economy. The customers
oblige banking either to make or generate something for their own usage or
expansion of business.
As a result of stand-out threats, Islamic banks don't make these trades on a
broad scale & execute only if there should be an event of huge need where the
implementation of various modes are limitless. In addition, Islamic banks use these
trades with their specific customers who are trustworthy.