What is Istisna Contract?
Istisna is an Islamic finance contract under which a buyer commissions a manufacturer or contractor to produce a specified asset for a future delivery, with price and specifications agreed upfront and payment made in stages.
How It Works
- Buyer specifies the asset and price.
- Manufacturer produces or builds the asset.
- Payment is made progressively or upon delivery, per the contract.
Saudi Context
Saudi banks use Istisna heavily for construction and project finance, especially for Vision 2030 giga-projects. The contract is Shariah-compliant and SAMA-recognized.
Example
A Saudi bank funds a SAR 200 million factory build via Istisna, paying the contractor in milestones and on-selling the asset to the client over 7 years.