Islamic Contract – Bay’ al-Istisnā‘: Basic Rules and Conditions of Istisnā‘

​Islamic Contract – Bay’ al-Istisnā‘: Basic Rules and Conditions of Istisnā‘
1. The Object of Istisnā‘ Must Be Specifically Described
Explanation
Since istisnā‘ involves the sale of an asset that does not yet exist (bay‘ al-ma‘dūm), the subject matter must be clearly specified to avoid uncertainty (gharar).
The following specifications must be clearly determined:

• type;
• kind;
• quality;
• quantity;
• measurements;
• design; and
• essential characteristics.

If the manufactured asset does not comply with the agreed specifications, the purchaser may:

1. reject the asset and terminate the contract;
2. accept the asset at the agreed price; or
3. accept the asset subject to revised terms such as:
   • reduced price; or
   • extended completion period.

Example
A customer orders a customised sofa set through istisnā‘.
Agreed Specifications

• Material: Genuine leather
• Colour: Black
• Length: 3 metres
• Quantity: 2 sofa units
• Price: RM25,000

However, the manufacturer delivers fabric sofas instead of leather sofas.
Purchaser’s Rights
The purchaser may:

• reject delivery entirely;
• accept the sofas at RM25,000;
• negotiate a lower revised price.

2. The Object Must Be Manufacturable
Explanation
The subject matter of istisnā‘ must be something:

• commonly manufactured or constructed; and
• customarily contracted through istisnā‘.

Examples include:

• houses;
• vehicles;
• aircraft;
• furniture; and
• machinery.

An already completed or existing asset does not qualify as a valid istisnā‘ asset.
Similarly, items not commonly manufactured through istisnā‘ arrangements may not qualify.


Example
Valid Istisnā‘
A company commissions the construction of:

• a warehouse;
• delivery trucks; or
• industrial machinery.

These are manufacturable assets.
Invalid Istisnā‘
A person attempts to use istisnā‘ to purchase:

• an already completed apartment.

Since the apartment already exists and is identifiable at contract formation, it does not qualify as a valid istisnā‘ asset.


3. Materials Must Be Supplied by the Manufacturer
Explanation
In an istisnā‘ contract:

• the manufacturer (ṣāni‘) should supply the construction or manufacturing materials.

If the purchaser (mustaṣni‘) supplies the materials:

• the contract changes in nature and may become an ijārah (service) contract instead of istisnā‘.

Example
Valid Istisnā‘
A contractor agrees to build a house and personally supplies:

• cement;
• steel;
• bricks; and
• construction materials.

This is a valid istisnā‘ arrangement.
Ijārah Situation
A homeowner personally purchases all building materials and only hires the contractor for labour and construction work.
This arrangement resembles ijārah because the contractor mainly provides services rather than manufacturing.


4. Time of Delivery Must Be Specified
Explanation
The delivery date must be clearly determined to avoid uncertainty and future disputes.
If the seller fails to deliver on time, the purchaser may:

1. accept the asset on an “as-is” basis; or
2. terminate the contract.

Example
A company orders customised buses under istisnā‘.
Contract Terms

• Delivery date: 1 December 2027
• Contract price: RM2,000,000

The manufacturer delays delivery by 6 months.
Purchaser’s Options
The purchaser may:

• continue and accept late delivery; or
• terminate the contract due to non-compliance.

5. Place of Delivery Must Be Determined
Explanation
The delivery location should be specified, especially where:

• transportation;
• shipping; or
• loading arrangements are involved.

This avoids confusion regarding:

• delivery obligations; and
• transfer of possession.

Example
A manufacturer constructs industrial generators.
Contract Terms

• Delivery place: Port Klang, Selangor
• Delivery date: 15 March 2028

The specified location determines:

• transportation responsibilities;
• delivery completion point; and
• transfer of risk.

6. Price Must Be Determined
Explanation
The price in istisnā‘:

• must be known and agreed during the contract session.

The price may be:

• cash;
• deferred payment;
• progressive payment;
• usufruct; or
• other valuable consideration.

Payment arrangements may include:

• bullet payment;
• instalments; or
• progressive payments linked to project completion stages.

The parties may later revise:

• specifications; and
• price accordingly.

However:

• the price cannot be increased merely because of an extension in payment period.

Example
A construction company agrees to build a factory.
Contract Details

• Contract price: RM10,000,000
• Payment arrangement:
  • RM2,000,000 upfront
  • RM4,000,000 during construction
  • RM4,000,000 upon completion

Later:

• the purchaser requests additional warehouse space;
• parties revise the contract price to RM11,500,000.

Permissible Revision
The price increase is permissible because:

• specifications changed.

Impermissible Revision
The seller cannot increase the price solely because:

• the purchaser requested longer payment time.

7. Possession and Ownership Transfer
Explanation
Ownership transfers to the purchaser only after:

• the purchaser takes possession of the istisnā‘ asset; and
• the asset complies with agreed specifications.

Possession may occur through:

• actual possession (qabd haqīqī); or
• constructive possession (qabd hukmī).

Before delivery:

• ownership remains with the seller;
• ownership risks are borne by the seller.

The purchaser cannot sell the exact istisnā‘ asset before taking possession.
However:

• the purchaser may enter into another separate istisnā‘ contract (parallel istisnā‘) involving a similar asset.

Example
An Islamic bank commissions construction of a ship under istisnā‘.
Contract Details

• Ship construction price: RM50,000,000
• Delivery period: 3 years

Before delivery:

• the ship remains under the ownership and risk of the manufacturer.

After completion:

• the bank takes constructive possession through delivery documents and registration transfer.

Only then:

• ownership transfers to the bank.

The bank may subsequently sell:

• a similar ship through a separate parallel istisnā‘ arrangement.