Istisna’ Sukuk

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  • Monday, 13 June 2016 13:03

One financial instrument that is now being implemented in certain Islamic countries is the type of securities that are designed based on Istisna' contracts (manufacturing orders).

Definition of Istisna': This term is rooted in the Arabic word "Sana'a" meaning request and order for manufacturing something. It is commonly used to refer to a situation in which someone requests an artist or a craftsman to build something. In Law and jurisprudence, it refers to a contract by which one of the parties commits itself to manufacture and deliver a certain produce for the other party within a certain period of time and in exchange for a certain amount of money. Istisna' contracts have three distinguishing features: First, they usually do not include the product in question (subject of Istisna') and it will be built and delivered by the manufacturer in the future. Secondly, the supply of raw materials and tools falls upon the manufacturer. Thirdly, at the time of signing the contract, the entire fee is not paid, but only part of it is paid as an advance payment and the rest will be paid gradually until the goods are delivered. Sometimes, some part of the fee is paid only after the delivery of the goods.