Istisna Agreement

September 25, 2021

Normally, a contract for a product not yet manufactured constitutes some uncertainty about the product. Islamic law prohibits financial institutions from being part of transactions involving uncertainties (called gharar). In order to avoid any uncertainty, the istisna contract is as detailed as possible as to the final product. Infrastructure projects are the main examples of istisna application. These include the construction of power plants, factories, roads, schools, hospitals, buildings and residences. the parties to an istisna contract are: the manufacturer or the manufacturer; the bank (i.e. the financier); and the customer (i.e. buyer of goods). When the bank makes the istisna financial instrument available to the client, the client signs the contract with the bank for the indicated asset or project. Then, the bank (through its manufacturing agents) manufactures the asset or project according to the customer`s specifications. 3.

The Islamic bank (buyer) concludes with the contractor the parallel contract istisna (second istisna) to build the asset (house) according to the specifications agreed with the customer. 2. The Islamic bank (as seller/manufacturer) concludes an istisna contract with the customer. The price is determined as the cost of the bank, plus the profit margin. Istisna means asking someone to build, build or manufacture an asset. In Islamic finance, istisna is usually a long-term contract in which a party commits to manufacture, build or build assets, with the obligation for the manufacturer or producer to deliver them to the customer once completed. In practice, the main advantage of an istisna contract is that it can offer flexibility to the customer, where payments can be made in tranches related to the conclusion of the project, delivery or closure of the project. Unlike istisna` in the case of salam contract, payment must be made in full in advance. Kuwait Finance House (KFH) uses the istisna contract for real estate financing (real estate under construction) and project financing. The classical Treatise of Istisna has been discussed by jurists and scholars of Sharia law in Fiqh literature.

Only two contractors participate in this type of Istisna, namely the buyer (also known as Mustasni) and the seller (also known as the manufacturer and Sani). Classic istisna has the following mechanism: Remember that there is a separate istisna contract on both sides: between the customer and the bank and between the bank and the manufacturer.