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This chapter discusses how the contracts of istisna’ and ijara, alone and in combination, have found common modern application. The combination of istisna’ and ijara contracts in particular has found prominence in the project finance and asset finance sector, where in practice they operate like their conventional counterparts. Istisna’ is a contract of sale of specified items to be manufactured or constructed with an obligation on the part of the manufacturer (contractor) to deliver them to the customer on completion. Meanwhile, ijara is a term that means to give something in return for a rent. The ijara contract occurs principally in two situations. First, with respect to the provision of services. And second, with respect to the transfer of usufruct (or right of use) of an asset. In the second application, ijara is comparable to a conventional asset lease.

This chapter focuses on the murabaha structure, which is probably the most commonly used Islamic finance structure in modern Islamic banking. The simplicity of structure in its current application has promoted its use as a popular and flexible Islamic financing instrument. Indeed, the use of the murabaha has been extended beyond a widespread application as a standalone instrument to a composite component of Sukuk issuance in modern application. The murabaha contract is understood within the Islamic tradition to have a pre-Islamic origin evidenced in pre-Islamic literature and characterized as a fiduciary contract with the objective to assist less knowledgeable buyers in the determination of the fair price of unfamiliar goods. Today, murabaha is commonly used as a mode of finance, in its variant structures, for the acquisition of assets, commodities, and goods in the ordinary course of trade. The structure is also used as a corporate finance tool for working capital and liquidity management. The chapter then considers commodity murabaha (tawarruq) and its application.