Istisna’a and Parallel Istisna’a — practice questions

Correct answer: B. Clauses 2/2/1 and 2/2/2: An Istisna’a contract is binding on both parties once its conditions are met (specification of type, kind, quality and quantity, a known price and, where necessary, a delivery date). The parties are therefore bound by all its consequences and need not renew offer and acceptance after the subject-matter is completed. This differs from the promise in Murabahah, which requires a new sale contract through fresh offer and acceptance once the Institution takes possession of the item.

Correct answer: D. Clause 2/2/4: Istisna’a may not be used as a legal device for mere interest-based financing. The Standard gives as examples buying items from the contractor for cash and selling them back to the manufacturer on deferred terms at a higher price, the ordering party being the manufacturer himself, or one third or more of the production facility belonging to the customer. In such cases the subject-matter never genuinely changes hands, even if the deal is won through competitive bidding, and the transaction amounts to Bay’ al-’Inah. The ‘more than 50%’ threshold belongs to Murabahah (Standard No. 8), not Istisna’a.

Correct answer: A. Clauses 2/1/1, 2/1/2, 2/2/3 and 3/1/7: It is not permitted for the manufacturer to stipulate in the contract that he is not liable for defects. By contrast, the Institution may conclude an Istisna’a before it owns the subject-matter or its materials (Clause 2/1/1), may use price quotations obtained by the customer to evaluate expenses and prospective profit (Clause 2/1/2), and the parties may agree on a period during which the manufacturer is liable for defects or maintenance, or leave this to custom (Clause 3/1/7).