 In this module, we shall study risk management in the context of Istisna as an Islamic mode of finance. Istisna as a mode of finance is a complicated structure and hence it should be expected that it would involve a lot of risk of different types. We can identify six stages or six types of risks involved in Istisna as a mode of finance. What are these risks? Credit risk, operational risk, liquidity risk, credit risk and markup risk and there could be a bunch of other risks as well which we would look at with the help of this rather complicated diagram. This diagram has been taken from a research paper written by Nasucha Ahmed and Barr and that was published in 2019 in the International Journal of Management and Applied Research and the title of the paper was examining the viability of Istisna for project financing and economic perspective. Let us look at this complicated structure. This is an Istisna deal and as you know Istisna deal may take some time. So, this is the contract deal date i.e. this is the date when Istisna starts, Istisna as a mode of finance its application starts in this example. As you know that in case of Istisna the price is paid in installments over the life of the construction of the project. In the beginning there is some price and then in certain intervals the price is paid. Now if this is the advance payment the authors they say that you know there is a value of this advance payment and this would face market risk. This investment in a way in the Istisna based structure would face market price fluctuations and hence there is relevance of market risk in this case. In simple terms if the asset which is being constructed due to changes in market conditions due to changes in the prices in the market the value of the asset to be constructed changes the perception about this changes that would bring this market risk relevant to this structure. So this market risk this is relevant to Istisna. Then of course during this period of construction there is always a possibility of delay so we call it default of manufacturing. So this contractor which was hired that might not be able to deliver the manufacturing at different stages as per the contract and of course this would give rise to a risk. If this is because of the mistakes or oversight this could be an example of an operational risk. So this operational risk is there as well. Then we come to the delivery date. Delivery date if there is a delay or there is a default on delivery of course we face a risk over there as well which would have implications for credit risk. So we have identified market risk, we have identified operational risk, we have identified credit risk. Now if there is a default afterwards there would be a possibility of delay in selling the asset as well so that would have some implications in terms of risk management. If we ignore this default and delivery the project was delivered on time however the prospective buyers they default to buy. So that could be another possibility of a risk again we would identify this as a credit risk. The guys who had committed to buy they decided not to go ahead with their purchases. Then there is this markup risk. Markup risk meaning this whole project was priced with the reference to a benchmark. A benchmark if this was a global transaction this benchmark could have been with respect to LIBOR. But in case of Istisna like in case of Salam and like in case of Murabaha once the Istisna price has been fixed it cannot be changed even if there is a change in the benchmark rate. That would give rise to markup risk. So this will be number 4. Now if there is this delivery on delay on delivery after the selling date. Now if after the selling date there is a delay on delivery that would give rise to all these operational market risk and liquidity risk. So we have these 4, 5, 6 risks which are quite inherent to an Istisna Islamic modes of financing deep. So let me summarize the things in case of Istisna there is a possibility of operational risk because it is a special project there is always a possibility of some mistakes, some oversights which could give rise to operational risk. There is always a possibility of default, default on payment or default on delivery IE delay that would give rise to the credit risk. There is relevance of the markup risk because the price in Istisna mode of financing is fixed that would give rise to markup risk and of course there would be relevance to liquidity risk all these risks they are interlinked. If there is a change in one risk that would change the perception of the other risk as well and its quantification. So it is quite evident from this picture and from my conversation that Istisna is actually quite a risky mode of financing and at each and every stage due consideration should be given to these risks and these risks should be mitigated accordingly as per our conversations in the previous modules relevant to Murabaha, Ejara, etc.