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:

accept delayed completion;
negotiate revised terms;
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.

Kembara XTRA

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

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