Istisna' is a sale transaction where a commodity is transacted before it comes into existence. It is an order to a manufacturer to manufacture a specific commodity for the purchaser. The manufacturer uses his own material to manufacture the required goods.
In Istisna', price must be fixed with consent of all parties involved. All other necessary specifications of the commodity must also be fully settled.
Cancellation of contract:
After giving prior notice, either party can cancel the contract before the manufacturing party has begun its work. Once the work starts, the contract cannot be cancelled unilaterally.
Difference between Istisna' and Salam Istisna' Salam
.
| The subject on which
| The subject can be
|
| transaction of Istisna' is
| anything that need
|
| based, is always a thing
which needs to be
manufactured.
| manufacturing or not.
|
| The price in Istisna' does
| The price has to be paid in
|
| not necessarily need to be
paid in full in advance. It is
not even necessary to pay
the full price at delivery. It
| full in advance.
|
| can be deferred to any time
according to the agreement
of the parties. The payment
may also be made in
installments.
|
| I
| The time of delivery does
| The time of delivery is an
|
| not have to be fixed in
| essential part of the sale.
|
| Istisna'.
|
|
| The contract can be
| The contract cannot be
|
| cancelled before the
manufacturer starts the
work.
| cancelled unilaterally.
|
Difference between Istisna' and Ijarah:
Istisna' Barah
1.
| The manufacturer either
| The material is provided
|
| uses his own material and
| by the customer and the
|
| if it is not available with
| manufacturer uses only
|
| him, obtains it to make the
| his labor and skill
|
| ordered goods.
| meaning that his services
will be hired for a
specified fee paid to him.
| 2.
| The purchaser has a right
| Right of rejection of goods
|
| to reject the goods after
| after inspection does not
|
| inspection as Shiariah
permits somebody who
purchases a thing not seen
by whim, to cancel the sale
after seeing it. The right of
rejection only exists if the
goods do not conform to
the specifications agreed
upon between the parties
at the time of contract.
| exist.
|
Time of delivery
As pointed out earlier, it is not necessary in Istisna' that the time of delivery is fixed. However, the purchaser may fix a maximum time for delivery which means that if the manufacturer delays the delivery after the appointed time, he will not be bound to accept the goods and to pay the price.
In order to ensure that the goods will be delivered within the specified period, some modern agreements of this nature contain a penal clause to the effect that in case the manufacturer delays the delivery after the appointed time, he shall be liable to a penalty which shall be calculated on daily basis. Can such a penal clause be inserted in a contract of Istisna' according to Shariah? Although the classical jurists seem to be silent about this question while they discuss the contract of Istisna', yet they have allowed a similar condition in the case of Ijarah. They say that if a person hires the services of a person to tailor his clothes, the fee may be variable according to the time of delivery. The hirer may say that he will pay Rs. 100/- in case the tailor prepares the clothes within one day and Rs. 80/- in case he prepares them after two days.
On the same analogy, the price in Istisna' may be tied up with the time of delivery, and it will be permissible if it is agreed between the parties that in the case of delay in delivery, the price shall be reduced by a specified amount per day.
Istisna' as a mode of financing
Istisna' may be used to provide financing for house financing. If the client owns a land and seeks financing for the construction of a house, the financier may undertake to construct the house on the basis of an Istisna'. If the client does not own the land and wants to purchase that too, the financier can provide him with a constructed house on a specified piece of land. The financier does not have to construct the house himself. He can either into a parallel Istisna' with a third party or hire the services of a contractor (other than the client). He must calculate his cost and fix the price of Istisna' with his client that allows him to make a reasonable profit over his cost. The payment of installments by the client may start right from the day when the contract of Istisna' is signed by the parties. In order to secure the payment of installments, the title deeds of the house or land, or any other property of the client may be kept by the financier as a security until the last installment is paid by the client. The financier will be responsible to strictly conform to the specifications in the agreement for the construction of the house. The cost of correcting any discrepancy would have to be borne by him.
Istisna' may also be used for similar projects like installation of an air conditioner plant in the client's factory, building a bridge or a highway.
The modern BOT (buy, operate and transfer) agreements may be formalized through an Istisna' agreement as well. So, if the government wants to build a highway, it may enter into an Istisna' contract with the builder. The price of Istisna' maybe the right of the builder to operate the highway and collect tolls for a specific period.
Uses of Istisna':
House financing
Financing of plant / factory / building.
Booking of apartments
BOT arrangements
Construction of buildings and plants.
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