Istisna is a special type of sale where the subject matter is transacted before it comes into existence. It is an exceptional contract from the general rules of sale like a salam contract. Because, in both salam and istisna, the seller sells the commodity before he takes the ownership or possession of it.

Definition of istisna

The word istisna means in Arabic dictionary to request someone to manufacture an asset. Technically, it refers to a type of contract in which the buyer makes an order to a manufacturer to manufacture a specific commodity. The manufacturer uses his own material to manufacture the required commodity in istisna contract. The price is settled at the time of contract execution with the consent of both contracting parties.  Likewise, the specification of subject matter is also clearly explained in the contract. In other words, istisna is a type of sale where one party buys a good that other party manufactures according to the given specifications.

Differences between salam and istisna

There are few differences between salam and istisna contracts. In the following, we summarize them briefly.

1. The subject matter of istisna contract is always a thing which needs manufacturing. However, the subject matter of salam can be anything as long as it’s measurable and quantifiable. No matter whether it needs manufacturing or not.

2. It’s a necessary requirement for a salam contract that the price is paid in full in advance to the seller. However, it’s not an obligatory requirement in istisna transaction. It’s up to the agreement of the contracting parties whether they settle the price in advance or in installments or after the delivery of the commodity.

3. The contract of salam cannot be cancelled unilaterally once it executed. However, the contract of istisna can be cancelled by one party before the manufacturer starts his work.

4. It’s necessary in salam contract that the time of delivery must be fixed, otherwise, the salam contract become void. However, the contract of istisna is flexible in this manner. It is not obligatory for contracting parties to fix the time of delivery.

Difference between ijarah and istisna

The istisna contract is also different from ijarah contract which has been discussed in some details in previous articles. In istisna contract, the manufacturer manufactures the required goods with his own material. Therefore, if the material is not available, he has to get the raw material to manufacture the required commodity in istisna. But in ijarah contract, the material is provided by the customer and the manufacture only uses his labour skills and expertise. In case of ijarah, only the services of a skillful person are hired in exchange for a specified fee or remuneration.

This is a brief introduction of istisna contract. In the next article, we will discuss the basic rules of istisna and its applications in modern Islamic financial institutions.