Istisna`a

[Sapphire Capital]

Istisna`a is a contract of exchange with deferred delivery, applied to specified made-to-order items. General agreement upon principles of practice is difficult to identify, however it is often stated that:

a) the nature and quality of the item to be delivered must be specified.
b) the manufacturer must make a commitment to produce the item as described.
c) the delivery date is not fixed. The item is deliverable upon completion by the manufacturer.
d) the contract is irrevocable after the commencement of manufacture except where delivered goods do not meet the contracted terms.
e) payment can be made in one lump sum or in instalments, and at any time up to or after the time of delivery.
f) the manufacturer is responsible for the sourcing of inputs to the production process.

Istisna`a differs from ijara in that the manufacturer must procure his own raw materials. Otherwise the contract would amount to a hiring of the seller's wage labour as occurs under ijara. Istisna`a also differs from bay salam in that a) the subject matter of the contract is always a made-to-order item, b) the delivery date need not be fixed in advance, c) full advance payment is not required and d) the istisna`a contract can be canceled but only before the seller commences manufacture of the agreed item(s).

for further reading:
www.bankalbilad.com.sa/en/corpser04.asp?TabId=2&ItemId=23
www.kfh.com/English/investment/Istisnaa.asp
www.barakaonline.com/products/Istisnaa.htm