Definition and Key Distinctions
Istisna'a (استصناع) is a contract to manufacture or construct a specified item for an agreed price. Unlike Salam, Istisna'a allows flexible payment timing (upfront, installments, deferred, or on completion). Both contracts are binding from conclusion. Istisna'a does NOT require new offer and acceptance upon completion. The manufacturer CANNOT exclude defect liability.
| Feature | Salam | Istisna'a |
|---|---|---|
| Payment timing | FULL price upfront | Flexible: upfront, installments, deferred, or on completion |
| Subject matter | Generic fungible commodities | Custom-manufactured or constructed items |
| Binding nature | Binding from contract | Binding from contract |
| New offer/acceptance needed? | No (binding from start) | No (binding from start — different from Murabahah) |
| Defect liability | Not specifically addressed | Manufacturer CANNOT exclude defect liability |
Anti-Riba Safeguards
The following structures are PROHIBITED because they are disguised interest-based financing:
- Sale-and-buy-back: institution buys items from the manufacturer for cash and sells them back on deferred payment at a higher price.
- Manufacturer = orderer: the party ordering manufacture IS the manufacturer himself.
- Customer-owned facility: one-third or more of the production facility belongs to the customer.
Parallel Istisna'a
Works similarly to Parallel Salam — the institution enters two independent contracts. Contract #1: institution is the seller (to the end customer). Contract #2: institution commissions a manufacturer (institution is the buyer). The two contracts must be INDEPENDENT. If the manufacturer defaults, the institution remains liable to the end customer.