How Istisna differs from Salam and service hiring, and how it works in construction and projects Read the bilingual lesson for Manufacturing/Construction Sale (استصناع): Financing Something Yet to Be Built and test your understanding with a focused quiz.
Lesson
1. What Is Istisna?
Manufacturing/construction sale (استصناع) is an order to manufacture or construct a specified item. The manufacturer undertakes to produce the required goods using his own material, according to agreed specifications and price.
It is another special sale where the subject can be contracted before it physically exists, but it is specifically for something that must be made or constructed.
2. Price and Specifications Must Be Clear
The price must be agreed and the required item's specifications must be sufficiently detailed. Size, material, capacity, design, quality and other relevant characteristics should be settled according to the project.
Without clear specifications, the manufacturer and purchaser may later disagree about what was actually ordered.
3. When Can the Contract Be Cancelled?
The structure discussed allows either party to cancel before the manufacturer starts work, after giving notice. Once work has actually begun, unilateral cancellation is no longer available.
This protects the manufacturer after resources, labour and material have been committed.
4. Istisna vs Salam — Four Main Differences
Istisna is only for something requiring manufacture or construction; Salam can cover other precisely specifiable goods too. Full advance payment is required in Salam but not in Istisna.
Salam cannot simply be cancelled unilaterally once concluded, while Istisna may be cancelled before work begins. A delivery date is essential in Salam, while the classical Istisna structure discussed does not make it an essential condition.
5. Istisna vs Hiring Services (إجارة)
The key question is who provides the material. In Istisna, the manufacturer provides the material and produces the finished item.
If the customer supplies the material and the worker only provides labour and skill, the transaction is service hiring (إجارة), not Istisna. Giving your own cloth to a tailor and paying only for stitching is the simple example.
6. Must the Buyer Accept the Finished Item?
One Hanafi view gives the purchaser an option after seeing the finished goods. The view attributed to Imam Abu Yusuf, and adopted in the Ottoman codification discussed, binds the purchaser to accept the goods if they fully match the agreed specifications.
The practical reason is that rejecting perfectly conforming goods after the manufacturer has spent resources can cause serious commercial harm.
7. Delivery Time and Delay Reduction
Although a delivery date is not described as an essential classical condition, the purchaser may set a maximum delivery time. A pre-agreed reduction in price for delay may also be used—for example, a specified amount deducted for each day of delay.
This is presented by analogy with service contracts where the fee can vary according to completion time.
8. Istisna for House Construction
If a client owns land and needs construction finance, the financier may undertake through Istisna to deliver a completed house on that land. If the client has no land, the financier may undertake to provide a completed house on a specified plot.
Payment need not be fully advanced; it may be deferred or paid in installments according to agreement.
9. Parallel Istisna and Project Financing
The financier need not construct the project personally. It may enter a separate parallel Istisna with a third-party builder or hire a contractor, while remaining responsible to its client for the agreed result.
The same structure can be used for plants, bridges and highways. A Build-Operate-Transfer arrangement may even give the builder a specified period to operate the highway and collect tolls as the agreed consideration.
10. The Financier Remains Responsible
If the completed project does not match the specifications agreed with the client, the financier must arrange correction at its own cost. It cannot escape responsibility by blaming its contractor.
The financier's separate construction contract and its contract with the customer remain legally distinct.
Practice questions
Question 1
What is Istisna designed for?
- Something to be manufactured or constructed
- Only cash
- Only existing delivered goods
- Only employment
Question 2
Full advance payment is always required in Istisna exactly as in Salam.
Question 3
If the customer supplies the material and the worker only provides labour, what is it?
- Service hiring (إجارة)
- Istisna
- Salam
- Partnership
Question 4
When may unilateral cancellation be available?
- Before the manufacturer starts work
- After completion at any time
- Only after delivery
- Never
Question 5
A financier can avoid responsibility to the client by blaming the contractor in Parallel Istisna.
Question 6
Which is mentioned as suitable for Istisna financing?
- House, plant, bridge or highway construction
- Only salary payment
- Only currency exchange
- Only an existing rented asset
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