1. ISLAMIC ECONOMICS PROJECT
Istisna
ISLAMIC ECONOMICS PROJECT

2. Istisna
Istisna is a sale transaction in which the subject matter needs to be manufactured.
It is regarded as an exceptional sale as it does not follow all the basic rules of Sale from Islamic point of view.
In an Istisna transaction, delivery of the subject matter is deferred due to the fact that subject matter needs to be manufactured and does not exist at the time of entering into Istisna transaction.
Payment in Istisna can be immediate and can be deferred and can also be paid in installments.

3. Istisna
It is used in financing goods and services that are not ready for spot sale and will have to be manufactured.
In Salam, payment is spot in full, but the delivery is deferred. But, in Istisna, there is no restriction on time of payment.
Istisna can only be done for goods which are needed to be manufactured.

4. Process Flow of An Istisna Transaction
The process flow is as follows:
Islamic bank and the client sign an Istisna Agreement whereby the Islamic bank orders the client to produce certain goods.
Client manufactures the goods as per the specification.
Islamic bank appoints the client as its agent to stock the goods at its premises on bank’s behalf.

5. Process Flow of An Ijarah Transaction
Islamic bank orders the client to sell the manufactured goods (owned by bank) to a third party.
The Client sells the goods to a third party on bank’s behalf.
The client pays the Islamic bank the proceeds of the sale.
Islamic bank pays agency fees to the client for the services rendered by the client as bank’s agent.

6. Issues in Salam Transaction
Istisna contract can only be done of commodities whose characteristics can be specified.
It is necessary that the goods require some manufacturing process.
It is necessary that a maximum delivery date is specified by which date, the goods will be ready for delivery after manufacturing.
Price of raw material and other costs can be adjusted in the Istisna price if there is actual fluctuation in prices.

7. Application of Istisna in Islamic Finance
Corporate Financing
Industrial machinery
Industrial finished goods
Alternate for Project Financing
Financing construction projects
Financing infrastructure development
Pre-shipment financing in exports.

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