1. ISTISNA

3. Istisna
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 goods.
In Istisna',
price must be fixed with the consent of all parties involved.
All other necessary specifications of the commodity must also be fully settled.

4. Cancellation of contract
After giving notice
Either party can cancel the contract before the manufacturing party has begun its work
Once the work starts
The contract cannot be cancelled unilaterally

5. Difference between Istisna' and Salam
The subject mater must by an item
which eeds to be manufactured.
The subject may be anything that may
or may not need manufacturing.
The price does not necessarily need
to be paid full in advance. It would be paid after delivery or according to contract.
The price has to be paid in full in
advance.

6. Difference between Istisna' and Ijarah:
Ijarah tul Ashkhaas
The manufacturer uses his own
material or obtains it to make the
ordered goods.
The material is provided by the
customer and the manufacturer
uses only his labor and skill, i.e. his
services are hired for a specified
fee.
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.
Right of rejection of goods after
inspection does not exist.

7. ISTISNA' AS A MODE OF FINANCING

8. ISTISNA' AS A MODE OF FINANCING
Istisna' could be used as a mode of financing in the following manner.
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 client wants lands too so financier can provide him with a constructed house on a specified piece of land. (He can hire third party for construction)

9. ISTISNA' AS A MODE OF FINANCING
Istisna' could be used as a mode of financing in the following manner.
Istisna' can also be used for financing working capital requirements of a manufacturer.
The bank will order the manufacturer to manufacture certain specified goods and pays the Istisna price.

10. ISTISNA' AS A MODE OF FINANCING
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 etc.

11. ISTISNA' AS A MODE OF FINANCING
The modern BOT (Built, 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' may be the right of the builder to operate the highway and collect Toll Taxes for a specific period.

13. Risk Mitigation in Istisna
RISKS
DETAILS
MITIGANTS 1
Delivery Risk
Delay in delivery of
goods from the
Manufacturer to bank.
Istisna price can be
reduced on daily basis to
penalize the
manufacturer. 2
Nonperformance
The Manufacturer may
not be able to
manufacture the goods
during assigned time and
refuses to carry on the
responsibility further.
Bank can terminate the
Istisna agreement and
demand the price back
from the manufacturer.
Alternatively, the price
may be paid by Bank in
installments after being
satisfied with the
performance.

14. Risk Mitigation in Istisna3
Quality risk
The Manufacturer
delivers defected/
inferior goods.
Bank has the right to
reject the goods and
demand the price back. 4
Price risk
Market price of the
subject matter decreases
after bank enters into
Istisna agreement.
Parallel Istisna or promise
to purchase from a third
party will mitigate the
risk. 5
Storage risk
The goods once
delivered by
Manufacturer will be at
Bank’s risk before the
same are sold to the
ultimate purchaser.
This may be covered
through Takaful of the
goods and by minimizing
the time duration between
acceptance of delivery
under Istisna and delivery
to the ultimate purchaser.