The prospects ofistijrarfinancing in Islamic banking: an exploratory study in Bangladesh

Md. Habibur Rahman and N.M. Shafiul Islam Chowdhury

Qualitative Research in Financial Markets, 2023, vol. 16, issue 1, 135-158

Abstract: Purpose - This study aims to explore the prospects ofistijrarfinancing in the Islamic banking of Bangladesh. Istijrar is a supply sale contract that facilitates recurrent transactions under a master agreement without needing a deal-to-deal agreement.Murabahahfinancing in Bangladesh is being criticized for Shari’ah violations, which can be minimized if istijrar financing is integrated and applied. Design/methodology/approach - The study uses a qualitative approach, primarily using a semistructured interview method to collect the primary data. The study conducted 13 one-to-one interviews with leading Islamic banking experts in the country, including Shari’ah scholars, Islamic bankers and regulators. Besides, the study consults with classical and contemporary fiqhi sources to realize the status of istijrar sale in Islamic law. Thematic analysis is performed to explore the qualitative data. Findings - The study finds that istijrar financing has great prospects in the Islamic banking of Bangladesh. Istijrar is applicable in consumer financing and can be offered as an alternative or supplement tomurabahah. Also, postimportmurabahahfinancing can be structured with istijrar, while it can also be used in export financing. Besides, a few challenges should be dealt with before offering istijrar, such as proper structure, lack of literacy, stakeholders’ awareness, Shari’ah and regulatory approval and alignment with the law of the land. Practical implications - Murabahahfinancing is dominant on the asset side of Islamic banks’ balance sheets in Bangladesh.Murabahahpractice in Bangladesh is frequently criticized for some possible Shari’ah violations. Also, more documents are needed for eachmurabahahoperation, which eventually accelerates the costs. Applying istijrar would minimize these issues as it does not require a new contract for each deal. Multiple supplies can be done under a single agreement. Besides, istijrar reduces documentation hassle and transaction costs. Istijrar would be an easy practice and benefit the bank and its clients. Originality/value - This study contributes to the body of knowledge and the Islamic banking industry. The existing studies have not adequately addressed the potential of istijrar in Islamic banking. In addition, this study will be an eye-opener for Islamic bankers to develop new products with istijrar.

Keywords: Istijrar; Islamic banking; Shari’ah; Murabahah; Islamic trade finance (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:qrfmpp:qrfm-10-2022-0173

DOI: 10.1108/QRFM-10-2022-0173

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