How does Bay al-Istisna work as a financial instrument?
Al-Istisna is a contract in which a party orders another to manufacture and provide a commodity, the description of which, delivery date, price and payment date are all set in the contract. Any party can cancel the contract after giving a notice to the other before the manufacturing work starts. However, after the manufacturing work has started, the contract cannot be cancelled unilaterally. Istisna is similar to salam in the sense that both are exceptions to some general conditions of sale which prohibit selling of something which is not owned and is not in the possession of the seller at the time of sale. However, there are some differences between the two which are summarized below: i. The subject of istisna is always a thing which needs manufacturing, while salam can also be effected on things that do not involve manufacturing. ii. In the case of salam full payment of price is necessary whereas in case of istisna the payment can be delayed. iii. The time of delivery in case of sala
