What is Bai-Istijrar? How to investment made under Bai-Istijrar mode?

BAI-ISTIJRAR:

MEANING AND DEFINITION     

Meaning

 The term "Bai-Istijrar" has been derived from Arabic words بيع and جر (Bai and Zarra). The word بيع means to purchase and to sell and the word جر means to hoist, to lift up, pick up, bring up. "Istijrar" (استجرار) means to purchase goods from time to time in different quantities. In Islamic jurisprudence ‘Istijrar’ is an agreement where a buyer purchases something under a single agreement in different instalments. However, no offer and acceptance or bargain is required each time. The deal will be considered as a single agreement where all terms and conditions are finalized.

 Definition

"Bai-Istijrar" is called such a buying and selling where a person keeps  on taking delivery of required commodities part by part from time to time from a supplier and no offer(Ijaab) & acceptance (Qubul) and bargaining between them  is taken place each time of making and taking delivery.

TYPES OF ISTIZRAR:

             Istijrar mainly is of two types from the modern operational banking point of view:

 Taking delivery of goods without knowing the price:

The price of goods/ commodities is unknown while taking possession thereof. The buyer makes payment after use of the same. Such buying and selling without fixing up price, though apparently appears invalid is declared lawful by the Shariah Scholars on the basis of ‘Istihsan’.  

 Taking goods knowing the price:

The buyer takes the goods/commodities from the seller as per his requirements in phases knowing the price thereof and calculates the total price after completion of deal.

PURCHASE OF GOODS BY THE BANK

 Bai-Istizrar is perfectly a legitimate transaction according to Islami Shariah, provided:

a) That, the goods desired by the Client is first to be purchased by the Bank and ownership of the Bank on the goods is to be established, i.e. the Bank must transform its money into goods.

b)  That after purchase of goods the risk of the goods is borne by the Bank until the possession of the Merchandise has been passed on to the Client, i.e. " the Bank would have to continue to be responsible until the goods were actually delivered to the Client, not necessarily by the Bank, in accordance with specifications and other terms of the contract.”

 c)  That the specification of goods, delivery date, time and place and other terms of contract are ensured.

      In short, firstly, the transformation of  money into goods by the Bank and secondly, to bear the risk of transformation and that of the goods by the Bank until the same is handed over to the client are the two essential conditions, in order to make a Bai-Istizrar transaction  ' Halal '.  

      Any deviation from the above two conditions will deteriorate the transaction into purely financing arrangements with the agreed profit which will be nothing more than a camouflage for interest.  

      Therefore, in order to make Bai- Istizrar transaction 'Halal' (legitimate) the following procedures shall have to be followed:  

Authorised Official(s) alongwith the client shall contact the suppliers of the goods under transaction personally, will verify the quality, quantity, and other specifications, supplied by the client, study the market, collect the price / quotation, bargain with them, settle price and finalize the purchase mentioning the date, place of delivery and terms of payments keeping proper record of the same. 

Execute the Agreement with the supplier of goods ratified. This Agreement by no means be related with the Bai-Istizrar Agreement with the Client. 

Obtain Application / request from the client on his business’s Letter Head pad for purchasing the goods in each instalment.  

It should be carefully noted that purchase of goods shall be made only after completion of all the Documentation formalities, including Pre-Audit Memo  

Bai-Istizrar goods may be purchased and delivery of the same may be taken directly by the Bank from the supplier with whom the agreement has already been executed through any authorised official. 

                                                                                                                Or

            These may also be done through any Buying Agent (Individual/Firm/Organisation) duly engaging and authorising them by a separate contract to take delivery of the goods on behalf of the Bank as its Agent.

However, in case of purchase /lifting against Allotment(s) which is in the name of the client or any firm other than the client, from govt., semi-govt. Autonomous, semi-autonomous & reputed private concern’s physical verification and signing of agreement with the supplier may not be essential. In such cases the Bank must obtain valid Letter of Authority from the allottee to purchase and lift the goods by the Bank before making payment to the allotting authority. Otherwise, purchase of those goods by the Bank will not be valid as per Islamic Shariah.

If the goods are to be purchased from the local or outstation market and money is to be paid/remitted through P.O/T.T./DD etc., the P.O/TT/DD must be on behalf of the Bank and the commission thereof and other expenses such as T.A, D.A, Transportation etc. shall be borne by the Bank, which shall ultimately be loaded on the cost of goods.

             The Incumbent-in-charge, the Second Officer and the Investment-in-charge of the Branch will sign the P.O/TT/DD Application Form on behalf of the Bank.

 In case of purchase of goods by the Agent engaged for the purpose, he will purchase the goods from the supplier in the local market or outstation market following the same procedures as is followed by the Bank officials on behalf of the Bank.

 Agency commission, if any, paid by the Bank shall be added to the cost of goods.

 TAKING DELIVERY OF GOODS BY THE BANK

After finalization of purchase of Bai-Istizrar goods either by the Bank officials or through any Agent from the local or outstation market, the Bank shall request the seller each time after receiving requisition of some quantity of goods from the Bank’s client, to deliver the same quantity (as per terms of transaction) to the Bank's authorised official /agent / representative  (if authorized) or to the Banks godown against proper acknowledgement.

 The invoice /Delivery Chalan of each delivery must be exclusively in the name of the Bank and should be in duplicate. The Authorised Official / Agent / Representative/ Client (if authorized) shall receive delivery of goods by signing on (the back of) the duplicate copy which must be preserved by the supplier of goods attaching therewith the Bank’s relevant supply order for future use and reference.

 After taking delivery of the goods by the Bank or through an Agent, the Bank shall make payment of the price of the goods to Producers / Sellers / Suppliers through TT/DD/P.O. against Cash Memo / Money Receipts shall be exclusively in the name of the Bank. 

However, in case of Govt., Semi-Govt., Autonomous and Semi-Autonomous Bodies and Reputed Private concerns, where the goods are allotted in the name of Client or any other Firm(s) and where the delivery of goods are normally given after making payments, if the Supply / Delivery of goods is 100% certain, the Bank may make payment through DD/PO in favour of the Allotting / Supplying Authority after taking due Authorisation from the allottee / client to purchase and lift the goods by the Bank and make arrangement that the delivery of the goods is given to the Bank and not to the Allottee or Client.  

            An attested copy/photocopy of the Delivery Order issued by the Allotting Authority be kept in the file to ascertain the date of receipt of the goods by the Bank. 

The Bank shall not invest in such cases where the Allotting Authority will not accept the Letter of Authority and agree to deliver the goods to the Bank as per authorisation of the Allottee. 

DD/PO may also be issued in the name of the Buying Agent. In such a case, a letter of request detailing purpose as well as indemnifying the Bank for loss, accident either in cash or kind shall be obtained, besides adequate cash / collateral security / personal guarantee.  

SALE AND DELIVERY OF GOODS TO THE CLIENT 

After receiving the goods in the stated manner, deliver the goods of each instalment purchased by the Bank to the Client who will receive the delivery after putting his full signature with date and time on (the back of) original invoice/ delivery chalan issued by the supplier in Bank’s favour and preserve the same with attaching therewith the client’s request letter for future use and reference. 

In case of Bai-Istizrar sale, the delivery of goods if required to be given to the Client against TR  immediately after it is purchased, and received by the Bank, it may be given even from the godown / store / warehouse of the Producers / Sellers / Suppliers, of course, after being duly received by the Bank  and then by the client buyer. 

AGREEMENT AND CREATION OF BAI-ISTIZRAR INVESTMENT ACCOUNT       

The Bank, after delivery of each instalment of goods under the agreement, shall calculate the total cost price and fix-up the profit mutually agreed upon and determine the total sale price mentioning the total cost and profit separately.