Istisna

Istisna is an Islamic finance contract used to facilitate the manufacturing and construction of assets. It is a form of contract where a buyer (the customer) asks a seller (the manufacturer or contractor) to produce or construct a specific asset according to the buyer’s specifications. The seller agrees to deliver the asset at a specific future date, and the buyer agrees to pay the agreed price.

Istisna contracts are commonly used in the construction industry, where a buyer may need to finance a construction project. The buyer will contract with a contractor to build the asset, and the contractor will then seek financing to cover the costs of the construction. In Islamic finance, the financing will be structured as an Istisna contract, where the contractor agrees to construct the asset, and the buyer agrees to pay for the asset upon completion.

The Istisna contract is similar to the Murabaha contract, which is used to finance the purchase of goods. However, in an Istisna contract, the asset being financed is not yet in existence, while in a Murabaha contract, the asset being financed is already in existence and is being sold to the buyer.

The Istisna contract can be structured in several ways, including with or without a down payment. The contract can also be structured with a fixed or variable price, depending on the agreement between the parties. Additionally, the Istisna contract may include provisions for penalties or rewards for early or late completion of the asset.

In Islamic finance, Istisna contracts are seen as a way to facilitate economic development while remaining consistent with Islamic principles. The contract allows for the financing of important construction and manufacturing projects, while avoiding interest-based financing, which is prohibited in Islam.