Istisna

Definition

The Arabic word “Istisna” (استصناع) means “asking someone to manufacture”. Istisna is a sale transaction where commodity is transacted before it comes into existence. It is a contract of sale of specified items to be manufactured or constructed, with an obligation on the part of the manufacturer or contractor to deliver them to the Customer upon completion.

General Features Of Istisna

Financing Type:	Istisna
Target Market	Corporate/Commercial/SME customer involves in manufacturing business(es)
Purpose	All working capital requirements i.e procurement of law material, etc
Facility Amount	Facility amount shall be less than the prevalling market place
Tenure	180 days maximum
Security/Collateral	Primary: Hypo of Stocks & Receivables / Pledge Secondary hypo over Plant & Machinery / Mortgage / any other security as per Credit policy /Manual 2013 as amended from time to time
Mode of Payment:	Flexible but normally at maturity
Documentation Fee:	At Actual

Generic Process Flow / Modus Operandi

Step 1: Order to Manufacture by Bank (UBL AMEEN)

Customer and UBL Ameen enters into an Istisna Agreement under which UBL Ameen orders the customer to manufacture a certain Asset (specified items) for UBL Ameen against Flexible payment option (either advance or deferred payment).

Step 2: Delivery of Asset by the Customer

After manufacturing the asset, the asset is delivered to the bank by the customer.

Step 3: Sale of Asset in the market

After taking delivery bank sells the asset into the market either directly or by appointing someone as his agent (or the by making customer as an agent).