what is Istisna

what is Istisna

Istisna is a unique contract in Islamic finance that plays an important role in facilitating the financing of assets through a specific ordering process. This contract is utilized for the manufacturing of assets or goods that may not exist at the time of the agreement. Here are four key points to understand Istisna:

1. Customized Ordering: Istisna involves a buyer ordering a specific asset to be manufactured or constructed according to agreed-upon specifications. This customization aspect distinguishes Istisna from other types of contracts in Islamic finance.
2. Payment Structure: In Istisna, the payment is often linked to specific milestones or stages of completion. This ensures that payments are made progressively as the asset is being constructed, providing security to both parties involved in the contract.
3. Delivery Obligations: The seller, often a manufacturer or a contractor, is obligated to deliver the asset upon completion as per the buyer’s requirements outlined in the contract. This delivery obligation is a fundamental aspect of Istisna.
4. Risk Sharing: Istisna allows for the sharing of risks between the parties involved. The buyer bears the risk of advance payments, while the seller bears the risk of delivering the asset as per the agreed specifications and timeline.

You can read more about the types of islamic finanace or What is a halal Mortgage – to understand more about islamic finance.

Sources:

https://en.wikipedia.org/wiki/Islamic_banking_and_finance

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