Islamic Contract – Bay’ al-Istisnā‘: Determination of the Delivery Date in Istisnā‘ Contracts

​Islamic Contract – Bay’ al-Istisnā‘: Determination of the Delivery Date in Istisnā‘ Contracts
Q1: Why is the delivery date important in an istisnā‘ contract?
Answer:
The delivery date is important in an istisnā‘ contract because:

• the subject matter does not yet exist at the time of contract;
• the asset will only be manufactured or constructed in the future.

Therefore, determining the delivery timeline helps:

• remove uncertainty (gharar);
• avoid disputes between parties; and
• ensure contractual certainty regarding completion and handover.

Q2: What is the AAOIFI position regarding the delivery date?
Answer
According to AAOIFI Shariah Standard (Para 2/2/1):

• the delivery date must be determined if necessary.

This means:

• flexibility is allowed in certain situations;
• especially where customary business practice sufficiently determines delivery expectations.

AAOIFI adopts a relatively flexible approach depending on:

• nature of the manufactured asset;
• industry custom; and
• practical commercial circumstances.

Q3: What is the BNM position regarding the delivery date?
Answer
According to the Bank Negara Malaysia (BNM) Policy Document on Istisnā‘ (Para 10.2):
the istisnā‘ contract must include the time of delivery.
Under BNM:

• specifying the delivery date is mandatory;
• the delivery timeline must be clearly stated in the contract.

This stricter approach aims to:

• increase legal certainty;
• strengthen risk management; and
• reduce future contractual disputes.

Comparison Notes: AAOIFI vs BNM on Delivery Date
AAOIFI Position

• Delivery date determined if necessary.
• More flexible approach.
• May rely on customary business practice.

BNM Position

• Delivery date must be specified.
• Mandatory contractual requirement.
• Greater emphasis on certainty and documentation.

Case Study 1: AAOIFI Flexible Approach
A customer enters into an istisnā‘ contract for handcrafted furniture.
Contract Details

• Asset: Handmade luxury furniture
• Contract price: RM80,000

The contract states:
“Delivery shall be made upon completion according to normal industry practice.”
No exact delivery date is specified because:

• handcrafted manufacturing time may vary depending on artistic customisation.

Analysis
Under AAOIFI:

• this may be acceptable if:
  • industry custom sufficiently removes uncertainty;
  • parties understand expected completion timeframe.

Case Study 2: BNM Mandatory Delivery Date Requirement
An Islamic bank finances construction of industrial machinery under istisnā‘.
Contract Details

• Machinery price: RM2,000,000
• Delivery date: 30 June 2028

The contract expressly specifies:

• exact delivery timeline;
• installation completion schedule.

Analysis
Under BNM:

• specifying the delivery date is compulsory;
• this ensures:
  • certainty of obligations;
  • enforceability;
  • proper risk allocation.

Q4: What happens if the manufacturer fails to deliver on time?
Answer
If delivery is delayed:

• the purchaser may:
  • accept late delivery;
  • renegotiate terms; or
  • terminate the contract depending on contractual provisions.

The rights of parties depend on:

• agreed contractual terms;
• extent of delay; and
• applicable Shariah and legal standards.

Example of Delay in Delivery
A contractor agrees to construct a warehouse under istisnā‘.
Contract Details

• Contract price: RM5,000,000
• Delivery date: 1 January 2029

The contractor fails to complete construction by the agreed date.
Purchaser’s Options
The purchaser may:

1. accept delayed completion;
2. negotiate revised terms;
3. terminate the contract.

Important Principle in Istisnā‘
Because istisnā‘ involves:

• future manufacturing;
• deferred delivery; and
• non-existent assets at contract formation,

clear determination of:

• specifications;
• delivery period; and
• contractual obligations

is essential to preserve:

• Shariah compliance;
• fairness; and
• commercial certainty.