Search Islamic Finance Answers

1,000+ scholar-approved answers and growing...

Advance Payment To Contractor In Istisna

Is it permissible for a bank to make advance payment to a contractor in a contract of Istisna while the Istisna requestor, upon completion of the contract, pays the bank the contractor’s fee plus an additional agreed-upon percentage as the bank’s profit?

Such a transaction is not permissible since the additional percentage is akin to interest. The correct method of payment in an Istisna contract is for the bank to contract an independent Istisna contract with the client for an agreed lump sum amount, while contracting with a contractor to undertake manufacturing for an agreed amount which is lower than the amount receivable from the client. The difference between the amount due to the contractor and the amount receivable from the client is the bank’s profit.

7 Day Free Islamic Finance Course

Please enter your first name and email address to start receiving your CIFE™ lessons instantly!

We value your privacy. We will never rent, sell, or spam email addresses.

ASK AN ISLAMIC FINANCE QUESTION

Each question is reviewed by an Islamic finance expert and approved by a scholar.

Ask Now »

SEARCH ISLAMIC FINANCE Q&As

Browse one of the world's largest database of Islamic finance Q&As available online.

View details »

What’s New at Ethica

Press releases, live events, book recommendations, discount offers, and more

View details »