Istisna is an Islamic finance contract where a buyer commissions the construction or manufacture of a specific asset.
The buyer agrees to pay the seller in instalments during the construction or manufacturing process. The buyer finally takes ownership of the asset once the asset is fully completed, constructed and delivered.
This differs from a typical Western approach to financing, where payment is often made in full upon delivery or financed through through a loan agreement. Istisna adheres to Islamic principles by avoiding the payment of interest, or riba.
In essence Istisna can be viewed as a form of trade financing rather than debt financing. Istisna focuses on the exchange of an asset rather than the lending of money with interest.