Part II Islamic Law and Contracts in Practice, 9 Istisna’ and Ijara

Subject(s):

Islamic financial services — Capital markets

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.