Istisna’ contract is unique in that it is exempted from the basic ruling of sale that requires the existence of a transacted asset. Generally speaking, istisna’ can be briefly defined as a sale contract where the purchaser orders the seller to manufacture an asset according to particular specifications at request. The purchaser will make a request to purchase from the seller an asset, which is yet to exist, that will be manufactured and delivered upon completion according to the agreed stipulated future time. The buyer has the option to make the purchasing payment either on spot or on deferred basis through a staged payment method based on the phases of completion.
The ruling in istisna’ transaction requires that the price and the specification of the transacted asset must be precisely described at the outset to avoid uncertainty (gharar). The ruling also states that the asset must be of manufacturing and constructing in kind. Istisna’ contract is only binding once the project commences. Thus, one party may revoke the contract if the manufacturing or constructing process is yet to commence. Once manufacturing and constructing process has been commenced, no unilateral termination of contract is allowed unless there is a mutual agreement between both parties.
There are varieties of methods that can be adopted in structuring sukuk (Islamic financial certificates) using istisna’ contract. This article will give a brief explanation to readers on how istisna’ contract is employed in sukuk structure by illustrating two samples of istisna’ sukuk models. It is also worth noting that there could be a combination of two istisna’ transactions, known as istisna’ mawazi (parallel istisna’), used for issuance of sukuk.
