Istisna'a

A manufacturing or construction contract where a buyer commissions the creation of an asset to be delivered at a future date. The price, specifications, and delivery timeline are agreed upon in advance. Unlike Salam, the payment in Istisna'a can be made in installments throughout the construction period rather than in full upfront.

Widely used in construction financing, project finance, and equipment manufacturing. It is one of the few Islamic contracts that permits the sale of something that does not yet exist, provided the specifications are clearly defined.

Istisna'a is the commissioned-manufacture contract: a buyer orders something to be built or fabricated to specification — a house, a ship, an industrial plant, software — with the price fixed at signing and payable flexibly (up front, in milestones, or on delivery). It is one of the two sanctioned exceptions to the rule against selling what does not yet exist (the other is Salam), validated because precise specifications tame the uncertainty (gharar) that the rule targets; AAOIFI codifies it in Shariah Standard No. 11.

Unlike Salam, full prepayment is not required, and unlike Ijara, the deliverable is a finished asset rather than use of an existing one. Its modern significance is construction finance: Islamic banks fund real estate development through 'parallel Istisna'a' — the bank signs an Istisna'a with the customer to deliver the completed building at a marked-up price, and a mirror-image Istisna'a with the actual contractor at cost, keeping the spread as its profit while bearing delivery risk in between.

The same structure underlies infrastructure Sukuk and appears in U.S. halal construction-financing programs for custom homes. Key Shariah requirements: specifications and price must be fixed (open-ended cost-plus arrangements fail), the manufacturer bears the obligation to deliver conforming goods, and penalty clauses for delay are permitted only as pre-agreed reductions, not accruing interest-style charges.