Istisna’

Definition

Literally - the word istisna is a derivative from the root word sana or to manufacture or to construct something

Technically, it is a contract to purchase for a definite price something that may be manufactured later on according to agreedspecifications between the parties

Category

G1 - majority of jurists - istisna as part of salam price must be paid at the time of contract as in the case of salam.

G2- Hanafi jurists, istisna is another type of contract of sale, price can be paid later, not at the time of contract.
it involves labour, either to transform the raw material or to add value to it

Condition / Requirement

1. goods to be manufactured must be identified ( kind, type, measure, quality and quantity or any related specifications.
2. goods that can be manufactured (element of labour or manufacturing)
3. The manufacturer undertakes to construct the goods with his own material. Must from seller
4. price of the subject matter must be known

Prohibited Elements In Istisna

element of gharar - lack of knowledge on the specifications and the nature of subject matter to be manufactured

It is prohibited that the subject matter be already in existence at the time of the contract, or identified by designation.
The price could not be increased or decreased.
The raw material of the subject matter to be manufactured could not be supplied by the buyer
not permitted for the manufacturer to stipulate, that he will not be liable for defects in the subject matter
(Cost) cannot be drawn up on the basis of a murabahah sale or sale by determining the price on the cost plus basis.
In a parallel istisna’ , the institution or the bank cannot simply act as a financial intermediary - two contracts must be independently constructed.

Types Of Istisna

Ordinary istisna
Parallel istisna
Two contracts - independent but interrelated

1. between a bank as a seller/manufacturer who undertakes to manufacture a specified good, and a customer as the buyer to whom the goods will be delivered.

2. the bank as a buyer would request another company/producer to manufacture the same goods specified in the first istisna.

Binding Effect

Hanafi jurists

At the time of the contract before the commencement of the work by the manufacturer, all of them agreed that istisna is not binding at this stage and both parties reserve the right to revoke the contract.

After the commencement of the work and before the delivery to the buyer, they are also in agreement that it is not binding.

In the case of completion of the work and the delivery to the buyer, - binding (Imam Abu Yusuf)
* Imam Abu Hanifah was of the opinion that the parties still have the option to cancel the contract

Guarantee Clause

buyer may stipulate the collateral from the manufacturer either for the total amount he has paid or for the delivery of the subject matter in accordance with the specifications and due time.

manufacturer, he also has the right to a guarantee that the price is payable on due time.