The Classical Debate
The strict classical rule is bay’ ma laysa ‘indak — do not sell what you do not have. This would seem to prohibit manufacturing contracts, since the goods don’t exist at contract time.
The Hanafi resolution: Istisna’ is validated by custom (‘urf) and necessity (darura). Craftsmen have always made goods to order; the community’s need for this is established; the Prophet saw it practiced without prohibition. The Hanafi school treats istisna’ as a special type of contract distinct from both sale and salam — validated by custom rather than requiring the full conditions of either.
Maliki and Shafi’i: some treat it as a form of salam (thus requiring full upfront payment) or as a conditional sale; others validate it by custom.
Contemporary scholarship: AAOIFI and Islamic banking regulators treat istisna’ as a distinct, valid contract suitable for project finance, with deferred or staged payment validated.
Difference from Salam
| Salam | Istisna’ | |
|---|---|---|
| Subject | Fungible goods (wheat, oil) | Specified manufactured/constructed item |
| Price payment | Full upfront | Can be staged/deferred |
| Delivery | Fixed future date | On completion |
| Cancellation | Generally binding | Hanafi: either party may cancel before work begins |
| Custom required | No | Yes (validates the contract) |
Parallel Istisna’ in Islamic Finance
The most significant contemporary application: construction and infrastructure finance.
Bank + client structure:
- Client (buyer) enters istisna’ with Islamic bank: “Build me X for Y price, paid in installments”
- Bank sub-contracts the same project to a contractor in a second parallel istisna’ at a lower price
- Bank supervises; client makes payments; bank earns the spread between the two contracts
- On completion, the asset is delivered to the client
This allows project finance without interest — the bank’s return is the manufacturing margin, not interest on a loan.
See also: Fiqh Al Buyu, Fiqh Al Aqd, Fiqh Al Ijarah, Fiqh Al Mudarabah, Fiqh Al Musharakah, Fiqh Al Wakala