Istisnāʿ Structuring Framework
A sale contract on an asset to be manufactured or constructed to defined specifications, at an agreed price, delivered on agreed milestones. Frequently paired with a Parallel Istisnāʿ between the institution and the actual manufacturer.
Shariah Basis
"Permissibility of istisnāʿ established by the practice (taʿāmul) of the Muslim community."
"Istisnāʿ and Parallel Istisnāʿ."
"Istisnāʿ as an independent binding contract."
AAOIFI Shariah Standard No. 11 — Istisnāʿ and Parallel Istisnāʿ
Parties
Client / institution commissioning the manufactured item.
Party undertaking to manufacture/construct to specifications.
Essential vs Prohibited
Essential Conditions
- Subject matter clearly specified — quantity, quality, materials, performance
- Price fixed at contract execution
- Delivery milestones documented; payment may be staged
- Manufacturer bears manufacturing risk until delivery and acceptance
- Parallel Istisnāʿ must be a separate, independent contract from the primary one
Prohibited Elements
- Open-ended price or scope (gharar)
- Linking the two parallel contracts such that one is contingent on the other (in form)
- Payment of charges/penalties to institution income on late delivery (must go to charity)
- Sale before construction has commenced where the specification is uncertain
Transaction Flow
- 1
Specification & Pricing
Detailed specifications, milestones and total price agreed with purchaser.
- 2
Primary Istisnāʿ
Institution contracts with purchaser as ṣāniʿ; commits to deliver on milestones.
- 3
Parallel Istisnāʿ
Institution contracts independently with actual manufacturer as mustaṣniʿ.
- 4
Manufacture & Inspection
Progress monitored; milestone certification by independent engineer.
- 5
Delivery & Acceptance
Asset delivered; purchaser inspects and accepts.
- 6
Settlement
Final payment per agreed schedule; defects-liability period observed.
Required Documentation
- Primary Istisnāʿ Contract
- Parallel Istisnāʿ Contract (independent)
- Technical Specifications & Milestone Schedule
- Independent Engineer Certification Protocol
- Performance Bond / Takāful arrangement
- Shariah Adviser Approval Memorandum
Risk Controls
- Two contracts kept legally and operationally independent
- Milestone payments tied to independent certification
- Performance bond / takāful in place
- Defects-liability and warranty covenants enforced
- Annual Shariah audit and project compliance review
OSAS-IST™ — Advisory Dossier
Open the corresponding OSAS™ advisory standard to access the approval memorandum template, transaction layout sheet and Shariah opinion structure for this contract.
Open OSAS-IST™Part of the Onike Framework Ecosystem
OFIS™ · Onike Framework for Islamic Finance
Reviewed and Approved by Abdul-Azeez Onike Morufu — Registered Shariah Adviser, Securities Commission Malaysia
© 2026 The Onike Framework. All rights reserved.