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KembaraXtra–Islamic Finance–Islamic Capital Market – Istisna (Manufacturing an Asset)
• Istisna is a Shari’ah-compliant long-term financial contract used in Islamic finance for manufacturing, building, or constructing assets.
• Under an Istisna agreement, one party undertakes the obligation to manufacture, build, or construct an asset according to agreed specifications.
• The manufacturer or producer is required to ensure the completion and delivery of the asset to the customer.
• Istisna differs from Salam because it does not require full advance payment at the time of contract execution.
• The flexible nature of Istisna allows customers to choose different payment structures.
• Payments under an Istisna contract may be made in instalments during the project, at the time of delivery, or after the completed asset has been delivered.
• This flexibility makes Istisna suitable for projects with long construction or manufacturing periods.
• Istisna is most commonly used in infrastructure-related projects.
• Typical applications include power plants, factories, roads, schools, hospitals, commercial buildings, and residential developments.
• An Istisna contract generally involves three major parties.
• The producer or manufacturer is responsible for constructing or manufacturing the asset.
• The bank acts as the financier, facilitating the funding of the project.
• The customer acts as the purchaser of the completed asset.
• The Istisna structure ensures that financing is linked to real asset creation rather than monetary transactions, in compliance with Shari’ah principles.
• Istisna is a Shari’ah-compliant long-term financial contract used in Islamic finance for manufacturing, building, or constructing assets.
• Under an Istisna agreement, one party undertakes the obligation to manufacture, build, or construct an asset according to agreed specifications.
• The manufacturer or producer is required to ensure the completion and delivery of the asset to the customer.
• Istisna differs from Salam because it does not require full advance payment at the time of contract execution.
• The flexible nature of Istisna allows customers to choose different payment structures.
• Payments under an Istisna contract may be made in instalments during the project, at the time of delivery, or after the completed asset has been delivered.
• This flexibility makes Istisna suitable for projects with long construction or manufacturing periods.
• Istisna is most commonly used in infrastructure-related projects.
• Typical applications include power plants, factories, roads, schools, hospitals, commercial buildings, and residential developments.
• An Istisna contract generally involves three major parties.
• The producer or manufacturer is responsible for constructing or manufacturing the asset.
• The bank acts as the financier, facilitating the funding of the project.
• The customer acts as the purchaser of the completed asset.
• The Istisna structure ensures that financing is linked to real asset creation rather than monetary transactions, in compliance with Shari’ah principles.
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