1. MAHYUDDIN KHALID  emkay@salam.uitm.edu.my

2. CONTENT
 DEFINITION
DEFINITION
 EVIDENCE
EVIDENCE  PILLARS OF AL-ISTISNA’
 TYPES OF AL-ISTISNA’
PILLARS
 CONDITION OF AL-ISTISNA’
CONDITION
 DIFFERENCES BETWEEN AL-ISTISNA’ AND
BAY’ AL-SALAM
COMPARISON  MODERN APPLICATION
APPLICATION
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3. DEFINITION
 Literally:
DEFINITION
 The word istisna’ derived from the arabic verb
“istasna’a” which is mean to request someone to
EVIDENCE
manufacture an asset.
PILLARS
 Technically:
 Bay’ al-istisna’ is defined as a contractual agreement
CONDITION
with manufacturer to produce items with specified
description at a determined price, and manufactured
from his own materials with his own effort.
COMPARISON
APPLICATION

4. DEFINITION
 The Majallah al-Ahkam al-Adliyyah (Ottoman code
DEFINITION
of Islamic civil law) defines istisna’ as
 A contract with the maker, (manufacturer) on the
EVIDENCE
specific task that is liable to complete.
PILLARS
 Malaysian Accounting Standards Board (MASB)
defines the istisna’ as:
CONDITION  A contract of exchange whereby an IFI, at the request of
the customer, acquires an asset for purchase or
COMPARISON construction based on specifications by the customer.
The payment of acquisition price to manufacturer,
APPLICATION
developer or vendor of the asset is made up-front by
determined future date.

5. DEFINITION
 It is an order to producer to manufacture a specific
DEFINITION
commodity for the purchaser.
 The emphasis in istisna is the specificity of subject
EVIDENCE
matter to avoid gharar (uncertainty) ensuring that the
seller cannot transact with something that cannot be
PILLARS
accurately described; one can describe equipment, a
factory or an industrial plant, but not fish in the sea prior
CONDITION
catching them since their type and volume is unknown.
 Upon delivery, the IFI sells it to the customer at a
COMPARISON
prevailing market price comprising original acquisition
price and a margin of profit.
APPLICATION
 The customer repays by installments within a period
and in the manner agreed between the IFI and the
customer.

6. EVIDENCE
 According to jurist, the legality on an istisna’
DEFINITION
contract is established from different legal sources
such as the Sunnah, ijma’, qiyas and istihsan.
EVIDENCE
 There is no differences of opinion on its
PILLARS permissibility. It clearly can be seen from hadith:
 Indeed that the Prophet s.a.w booked the making of a
CONDITION golden ring
 The istisna’ contract is legitimate on the basis of the
COMPARISON people’s customary practice of this contract in all
periods of time without any objection, which in turn
APPLICATION
constitutes a legal consensus.
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7. PILLARS OF ISTISNA’
 Mustasni’
DEFINITION
 Customer
EVIDENCE  Sani’
 Manufacturer
PILLARS  Ra’s al-Mal
 The Price
CONDITION
 Masnu’
COMPARISON
 The Product
 Sighah
APPLICATION  Ijab (Offer)
 Qabul (Acceptance)
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8. FLOWS OF ISTISNA’
1) Ijab (Offer)
DEFINITION
3)
Ra’s al-Mal
EVIDENCE
(Price)
PILLARS
Mustasni’ Sani’
CONDITION
(Customer) (Manufacturer)
COMPARISON
Masnu’
APPLICATION 4)
(Product)
2) Qabul (Acceptance)
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9. TYPES OF ISTISNA’ CONTRACT
DEFINITION
Classical Istisna’ Parallel Istisna’
EVIDENCE • The normal • Contractual agreement
istisna’contract that consists of two series of
PILLARS involves two seperate istisna’
transacting parties; the contracts whereby the
CONDITION customer (mustasni’) first istisna’ contract is
and the manufacturer between the ultimate
COMPARISON (sani’) purchaser (customer)
and the seller (bank),
APPLICATION
who is responsible for
delivering the specified
asset to the purchaser.
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10. CONDITION OF ISTISNA’
DEFINITION
Conditions of subject matters (masnu’)
EVIDENCE • The object to be manufactured must be precisely determined
in its type, kind, quantity and quality, considering that
PILLARS
istisna’ contract is a form of sale of the non-existence.
• The object of an istisna’ contract must be something that the
people are familiar with to contract it on the basis of
CONDITION
manufacture and construction process.
• Istisna’ contract always associated with the risk of
COMPARISON uncertainty of the deliverability of the subject matter which
can be mitigated through the above said mechanism.
APPLICATION • If the subject matter does not conform to the contractual
specifications at the time of delivery, the purchaser has the
right to either refuse or accept it.

11. CONDITION OF ISTISNA’
Conditions of time of delivery
DEFINITION
• The best view to fix the delivery time to avoid dispute even though it is not a
requirement.
EVIDENCE • The time of delivery of the manufactured object must be clearly specified to
avoid uncertainty and ambiguity which may lead to a later dispute among
the transacting parties.
PILLARS
• The customer permitted to penalize the manufacturer if the latter fails to
deliver the work on specified date.
CONDITION
Conditions of price for istisna’
• Price of istisna may be in the form of money, commodity and usufruct.
COMPARISON • Price of istisna may be spot and differed therefore istisna is applicable where
salam is not applicable.
APPLICATION
• Price of istisna is can be paid in installments.
• The installments may be tied up with different stages of projects.
• When the required goods have been manufactured by the manufacturer
purchaser can exercise his option of defect, but he cant use his option of
seeing.

12. DIFFERENCES BETWEEN AL-ISTISNA’ AND SALAM
BAY AL-ISTISNA’ BAY’ AL-SALAM
DEFINITION
The subject of istisna’ is always a The subject can be any thing,
thing which needs whether need manufacturing or
EVIDENCE manufacturing. not
The price in istisna’ does not The price has to be paid in full in
PILLARS necessarily need to be paid in full advance.
in advance.
CONDITION Time of delivery of istisna’ Time of delivery is an essential
product does not have to be fixed part of the sale
COMPARISON The contract can be cancelled The contract cannot be cancelled
before the manufacturer starts unilaterally.
working.
APPLICATION
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13. APPLICATIONS
 In contemporary Islamic finance, an istisna’ contract
DEFINITION
is applicable to various industrial productions
which can be constructed or manufactured and
EVIDENCE
supervised by specification.
PILLARS  Customers are able to apply for the istisna’
financing facility and other product offered by
CONDITION Islamic bank using istisna’ contract such as:
 Parallel istisna’ (Istisna’ Mawazi)
COMPARISON  Hybrid Istisna’
 Sukuk istisna’
APPLICATION
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14. PARALLEL ISTISNA’ (ISTISNA’ MAWAZI)
2
DEFINITION
3 Bank
EVIDENCE
PILLARS
CONDITION
Customer
COMPARISON Also as developer
4
Original Seller/
APPLICATION Developer
(Builder)
1
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15. PARALLEL ISTISNA’ (ISTISNA’ MAWAZI)
 Parallel salam takes effect through two separate contract.
DEFINITION
 In the first contract the IFI act in the capacity as
manufacturer, builder or supplier and concludes a
EVIDENCE
contract with the customer.
 In the second contract the IFI act in the capacity of a
PILLARS
purchaser and concludes another contract with a
manufacturer, builder or supplier in order to fulfill its
CONDITION
contractual obligations towards the customer in the first
contract.
COMPARISON
 By this process a profit is realized through the difference
APPLICATION
in price between the two contracts and in most cases,
one of the contract is concluded immediately and the
second contract concluded later.
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16. END OF CHAPTER
DEFINITION
EVIDENCE
PILLARS
CONDITION 
COMPARISON
APPLICATION
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