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MANAGEMENT SCIENCE UNIVERSITY (MSU)

BAI AL-ISTISNA
ISLAMIC
PRESENT
BY :
FINANCIAL
MUHD
AJWAD BIN ZAIDI
MUHAMMAD
BIN
DFN NAJMUDIN
2043
PAIMAN
DAUDFAROOK BIN HAJA
ALAUDEEN
SITI ARENA ANTASHA BINTI
AMIR
LECTURER : MADAM

DEFINITION OF BAI ISTISNA

The word istisna derived from the arabic verb


istasnaa which is mean to request someone to
manufacture an asset.

Bai' Al-Istisna refers to a sale by order of goods/


property, which is to be constructed/ manufactured,
and delivered at a specified future date.

Malaysian Accounting Standards Board (MASB)


defines the istisna as:
A

contract of exchange whereby an IFI, at the request of

the

customer,

acquires

an

asset

for

purchase

or

construction based on specifications by the customer. The


payment of acquisition price to manufacturer, developer or
vendor of the asset is made up-front by determined future
date.

EVIDENCE

According to jurist, the legality on an istisna contract is


established from different legal sources such as the Sunnah,
ijma, qiyas and istihsan.

There is no differences of opinion on itspermissibility. It clearly


can be seen from hadith:
Indeed that the Prophet s.a.w booked the making of a golden ring

The istisna contract is legitimate on the basis of the peoples


customary practice of this contract in all periods of time without
any objection, which in turn constitutes a legal consensus.

PILLARS OF ISTISNA

Mustasni/ Mustashni
Customer

Sani/ Shani
Manufacturer/ Seller

Ras al-Mal
The Price the product

Masnu/ Mushnu
The Product/ Object of the contract

Sighah

Ijab (Offer)

Qabul (Acceptance)

FLOW OF BAI-ISTISNAA
Ras al-Mal
(Price)

Sani
(Manufacture)

Mustasni
(Customer)

Masnu
(Product)

BAI ISTISNA STRUCTURE

PILLAR OF BAI ISTISNA

A) Bai 'istisna binding upon each party agreed on the goods ordered.

B) Bai 'istisna can be performed on the items can be ordered by the


manufacturer.

C) In bai 'istisna, identification and description of goods sold must


comply booking request.

D) Payment in bai 'istisna done on time and place agreed.

E) After ordering a binding sale and purchase agreement, none can


haggle back to the content of the contract agreed.

F) If the object of the order is not in accordance with specifications,


the reservation can use the voting rights (khiyar) to continue or
cancel the booking.

EXAMPLE OF BAI ISTISNA

A client asks the bank to construct a house for him


with clear specification. The cost to construct the
house is RM400,000.

The bank agrees and signs an Istisna contract with


the client.
(The bank is the seller in the first Istisna. The selling
price that the bank charges is RM450,000 i.e. Cost
of construction plus profit to the bank).

The

bank

then

finds

contractor

for

the

construction and asks him to handle the project.

The contractor agrees and signs an Istisna


contract with the bank.
(Now the contractor is the seller in the second
Istisna.

The

contractor

charges

the

full

construction cost, say RM400,000).

Upon completion, the contractor delivers to the


bank and the bank delivers to the client.

THE TYPE OF BAI-ISTISNAA

Classical Istisna

The normal istisnacontract that involves two transacting parties

Customer (Mustasni) - Manufacturer (Sani)

Parallel

Istisna

Contractual agreement consists series of separate istisna


contracts whereby the istisna contract is between the ultimate
purchaser (customer) and the seller (bank), who is responsible
for delivering the specified asset to the purchaser.

THE CONDITION OF BAI-ISTISNAA

Conditions of Mustasni (Customer)

The contract can be cancelled unilaterally before manufacturer starts working.

After the work has started the contract cannot be cancelled.

Conditions of Ras al-Mal (Price)

Price of istisna may be in the form of money, commodity and usufruct.

Price of istisna may be spot and differed therefore istisna is applicable where
Bai Salam is not applicable.

Price of istisna is can be paid in installments.

The installments may be tied up with different stages of projects.

When the required goods have been manufactured by the manufacturer,


purchaser can exercise his option of defect, but he cant use his option of
seeing.

Conditions of Time

The best view to fix the delivery time to avoid dispute even though it is not a
requirement.

The time of delivery of the manufactured object must be clearly specified to avoid
uncertainty and ambiguity which may lead to a later dispute among the transacting
parties.

The customer permitted to penalize the manufacturer if the latter fails to deliver the
work on specified date.

Conditions of Masnu (Product)

The object to be manufactured must be precisely determined in its type, kind,


quantity and quality, considering that istisna contract is a form of sale of the nonexistence.

The object of an istisna contract must be something that the people are familiar
with to contract it on the basis of manufacture and construction process.

If the subject matter does not conform to the contractual specifications at the time
of delivery, the purchaser has the right to either refuse or accept it.

DIFFERENCES BETWEEN
ISTISNA AND SALAM
Description

Bai Salam

The subject

Can be affected on anything, Is


no matter

Istisna

always

thing

needs

whether it needs manufacturing.

manufacturing or not.
The delivery The price has to be paid in full The price does not necessarily
of the price

in advance.

need to be paid in full in advance.

The time of Esssential part of sale.

Not necessary that the time of

delivery

delivery is fixed.

The

revoke Once

of contract
In

term

guarantees

affected,

cannot

cancelled.
of Involve
financier

high

be Can be cancelled before the


manufacturer starts the work.

risk

for

the Involve lower risk compared to


bay salam.

DEFINITION OF BAI AS-SALAM

Bai as-Salam or Salam means a contract in which


advance cash payment is made for goods to be
delivered later on.

The seller undertakes to supply some specific goods


to the buyer at a future date in exchange of an
advance price fully paid at the time of contract.

DIFFERENCE BETWEEN
ISTISNA & IJARAH
Istisna

Ijarah

The manufacturer either uses his own The material is provided by the
material

customer and the manufacturer uses


only his labor and skill.

DEFINITION OF AL-IJARAH

Ijarah is an Islamic alternative of Leasing.

Leasing backed by an acceptable contract is an


acceptable transaction under Shariah.

Ijarah is a contract whereby the owner of an asset,


other than consumable, transfers its usufruct to
another person for an agreed period at an agreed
consideration.

THANK
YOU
FROM

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