istisna'a

(construction or manufacturing financing)

Under an istisna'a contract, the financier provides funds to a supplier who agrees to produce that is to manufacture, construct, assemble or package a specific asset. As a result, it acquires title to the asset and immediately sells or leases it back to the supplier.

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ijara

+ istisna'a

International, USA

An Islamic finance technique used to finance the construction or manufacture of assets on terms compliant with Sharia. In an istisna'a transaction, a lender agrees to buy an asset to be delivered once construction or manufacturing of that asset is complete. The lender pays the purchase price of the asset in accordance with the progress of the asset's construction or manufacture which gives the contractor/manufacturer the liquidity it needs to construct or manufacture the asset. Once manufacture or construction is complete, the lender acquires the asset which it can then sell or lease to the contractor/manufacturer or a third party for a profit. An istisna'a transaction differs from a bai al salam transaction in that the:

• Purchase price does not have to be paid in advance.

• Delivery date does not have to be fixed at the outset.

• Purchase price is paid in installments in accordance with the manufacture or construction of the asset.