In brief
Istisna’ is a contract by which one orders an asset to be manufactured or built, precisely described, with a price that may be paid in stages. It binds both parties and may include a penalty clause for a manufacturer who delivers late (International Islamic Fiqh Academy, resolution 65, 1992).
The principle
Unlike salam, the price in istisna’ does not have to be paid in advance: it may be paid as the work progresses or after delivery. The object is an asset that requires manufacturing work: a building, a machine, a ship, furniture.
The rules of the International Islamic Fiqh Academy
In its resolution 65 (3/7) (Jeddah, May 1992), the Academy ruled that istisna’ is a binding contract for both parties, provided it specifies the nature, quantity and characteristics of the asset and the delivery date. The price may be deferred in whole or in part, and the contract may include a penalty clause if the parties agree to it, except in cases of force majeure. Resolution 109 (3/12) confirmed that this clause is permitted against the manufacturer, but not against a buyer who is late in paying.
Housing and projects
The Academy cited istisna’ among the lawful ways of acquiring a home, by buying off-plan with the price paid in stages (resolution 50 (1/6), 1990). Islamic banks use it to finance construction: they conclude an istisna’ with the client, and a parallel istisna’ with a builder.
Frequently asked questions
How does it differ from salam?
Salam concerns ordinary goods and requires the price to be paid immediately; istisna’ concerns an asset to be manufactured and allows payment in instalments.