KAFALAH BASED ISTISNA MODEL FOR REGISTERED SME(s) AS VENDOR FOR CORPORATE SEGMENT
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Date
2015
Authors
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Journal ISSN
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Publisher
UMT,Lahore
Abstract
The study proposes product development under Shariah compliance economic model for
Islamic banking sector by conducting the descriptive nature of studies of Istisna financing and
Kafalah (supporting contract) base for promoting registered SMEs by Corporate segment‟s
identification. This study is conducted mainly for identifying that under prevailing practice of
Istisna financing product available with the Islamic banking sector; the borrower provides a
“Corporate Guarantee” under an independent capacity to an Islamic bank for guaranteeing the
credit reputation of the buyers and undertakes for settlement of bank‟s liability where the buyer
fails to pay the sale price to the bank. Shariah has certain obstacles for Islamic banking for
returns over investments. Investments are based on assets under various target market
segmentation. Besides all the constructive role of SME sector towards employment creation and
national growth of economy is notable. It is effective target market for bank‟s earnings, national
growth, corporate entities recognition, enterprises development and so on. The research study
attempted to introduce a model for indulging the ultimate buyer specified product with Istisna
transaction after issuing a work order to registered outsourced vendors (manufacturers) and
attach buyer with transaction by issuing a third party corporate guarantee in favor of Islamic
Bank. On the other hand supplier i.e. borrower of bank has to issue a “Performance Guarantee”
for ensuring the specification according to ordering details in presence of Shart-e-Jazai. An
undertaking/ promise by the buyer would secure the transaction for proceeds as per terms and
conditions prescribed in the order against supplies of specify items. Thereby effective utilization
of available modes of financing would beneficial for SME (s) for availing financial arrangements
from banking sector against confirmed cash flows. This research highlights financial resort based
on Shariah recognized models Kafalah and Istisna for entertaining small enterprises to avail
financial arrangements against specific in hand orders