Istisna' is a sale transaction where a commodity is transacted before it comes into
existence. It is an order to a manufacturer to manufacture a specific commodity
for the purchaser. The manufacturer uses his own material to manufacture the required
In Istisna', price must be fixed with consent of all parties involved. All other
necessary specifications of the commodity must also be fully settled.
Cancellation of contract:
After giving prior notice, either party can cancel the contract before the manufacturing
party has begun its work. Once the work starts, the contract cannot be cancelled
Difference between Istisna' and Salam
Istisna' / Salam
The subject on which transaction of Istisna' is based, is always a thing which needs
to be manufactured. The subject can be anything that need manufacturing or not.
The price in Istisna' does not necessarily need to be paid in full in advance. It
is not even necessary to pay the full price at delivery. It can be deferred to any
time according to the agreement of the parties. The payment may also be made in
installments. The price has to be paid in full in advance.
The time of delivery does not have to be fixed in Istisna'. The time of delivery
is an essential part of the sale.
The contract can be cancelled before the manufacturer starts the work. The contract
cannot be cancelled unilaterally.
Difference between Istisna' and Ijarah:
The manufacturer either uses his own material and if it is not available with him,
obtains it to make the ordered goods. The material is provided by the customer and
the manufacturer uses only his labor and skill meaning that his services will be
hired for a specified fee paid to him.
The purchaser has a right to reject the goods after inspection as Shariah permits
somebody who purchases a thing not seen by him, to cancel the sale after seeing
it. The right of rejection only exists if the goods do not conform to the specifications
agreed upon between the parties at the time of contract. Right of rejection of goods
after inspection does not exist.
Time of delivery
As pointed out earlier, it is not necessary in Istisna' that the time of delivery
is fixed. However, the purchaser may fix a maximum time for delivery which means
that if the manufacturer delays the delivery after the appointed time, he will not
be bound to accept the goods and to pay the price.
In order to ensure that the goods will be delivered within the specified period,
some modern agreements of this nature contain a penal clause to the effect that
in case the manufacturer delays the delivery after the appointed time, he shall
be liable to a penalty which shall be calculated on daily basis. Can such a penal
clause be inserted in a contract of Istisna' according to Shariah? Although the
classical jurists seem to be silent about this question while they discuss the contract
of Istisna', yet they have allowed a similar condition in the case of Ijarah. They
say that if a person hires the services of a person to tailor his clothes, the fee
may be variable according to the time of delivery. The hirer may say that he will
pay Rs. 100/- in case the tailor prepares the clothes within one day and Rs. 80/-
in case he prepares them after two days.
On the same analogy, the price in Istisna' may be tied up with the time of delivery,
and it will be permissible if it is agreed between the parties that in the case
of delay in delivery, the price shall be reduced by a specified amount per day.
Istisna' as a mode of financing
Istisna' may be used to provide financing for house financing. If the client owns
a land and seeks financing for the construction of a house, the financier may undertake
to construct the house on the basis of an Istisna'. If the client does not own the
land and wants to purchase that too, the financier can provide him with a constructed
house on a specified piece of land. The financier does not have to construct the
house himself. He can either enter into a parallel Istisna' with a third party or
hire the services of a contractor (other than the client). He must calculate his
cost and fix the price of Istisna' with his client that allows him to make a reasonable
profit over his cost. The payment of installments by the client may start right
from the day when the contract of Istisna' is signed by the parties. In order to
secure the payment of installments, the title deeds of the house or land, or any
other property of the client may be kept by the financier as a security until the
last installment is paid by the client. The financier will be responsible to strictly
conform to the specifications in the agreement for the construction of the house.
The cost of correcting any discrepancy would have to be borne by him.
Istisna' may also be used for similar projects like installation of an air conditioner
plant in the client's factory, building a bridge or a highway.
The modern BOT (buy, operate and transfer) agreements may be formalized through
an Istisna' agreement as well. So, if the government wants to build a highway, it
may enter into an Istisna' contract with the builder. The price of Istisna' maybe
the right of the builder to operate the highway and collect tolls for a specific
Uses of Istisna':
Financing of plant / factory / building.
Booking of apartments
Construction of buildings and plants.