Economic Analysis of the Transaction Costs of Istisna and Critique the Bank's istisna Instruction of the Money and Credit Council.

Document Type : Research Paper

Authors

1 M.A Student in International Trade and Economics Law, University of Tehran

2 Associate-Professor at faculty of Law and Political sciences, University of Tehran

10.22034/law.2024.59116.3333

Abstract

In today's world, banks operate in the financial sector and their main function is to attract deposits from the public (customers) and provide loans to applicants (borrowers). Banks reduce transaction costs and act as intermediaries in money market transactions. If a bank enters the real economy sector, it essentially becomes involved in entrepreneurship, which conflicts with its primary function. Some Islamic contracts pose a risk to banks entering into entrepreneurship. One of these contracts is the Istisna contract. The Istisna contract has existed among people in traditional societies since the past, and general and Shia jurists have expressed different views on its validity and nature, and this issue has not been a point of agreement between them. Regardless of the nature of Istisna, supplementary rules for this contract must first be established by a specific legislator. On the other hand, a bank's Istisna contract was included in Islamic banking contracts by the directive of the Money and Credit Council. In this paper after examining the nature and economic analysis of Istisna outside the banking system, we criticize the Istisna directive of the Money and Credit Council and analyze the disadvantages of this contract in the banking system and its conflicts with the philosophy of banks' existence. In this article, using analytical and descriptive methods as well as library research, we conclude that the costs arising from Istisna contracts and similar contracts such as Murabaha lead to economic inefficiency, and due to increased transaction costs, information asymmetry, and lack of benefit cost, the banking system should avoid entering this field.

Keywords

Main Subjects

Jurisprudence and Islamic Law

Articles in Press, Accepted Manuscript
Available Online from 09 September 2024

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