What is the difference between Istisna and Salam?

The following are the main differences between Istisna' and Salam:

1. In case of Istisna, the subject on which transaction of Istisna' transaction is based is always a thing which needs manufacturing/assembling/processing etc., whereas in case of Salam, the subject matter can be a thing that does not necessarily need manufacturing etc.

What is the difference between Istisna and Ijarah?

According to Istisna, the manufacturer either uses his own material or he arranges for the material himself whereas under Ijara the material is provided by the customer and the producer uses only his labour and skill meaning that his services will be hired for  a specified fee paid to him. Further, under Istisna the purchaser has the right to reject the goods after inspection if these are not according to the specifications agreed at the time of contract whereas under Ijara this right of examination does not exist.

What is Istisna?

It is a particular kind of a Bai (sale) where the sale of the goods is transacted before the goods comes into existence. The legality of Istisna is accepted by the Shariah scholars because it does not contain any prohibition, As far as the financing mode, it has been legalized on the basis of the principles of Istihsan (public interest). Istisna is an contract culminating in a sale at an agreed price whereby the purchaser places an order to manufacture,build, assemble or construct (or cause so to do) anything to be delivered at a future date.

Requirements for Bai Salam

The Salam transaction is subject to the strict conditions as follows:

1. It is necessary for the validity of Salam that the buyer pays the price in full to the seller at the time of affecting the sale. In the absence of full payment, it will be the same as to sale of a debt against a debt, which is expressly prohibited by the Holy Prophet (PBUH). Furthermore the basic basis for allowing Salam is to facilitate the "instant need" of the seller. If it is not paid in full, the basic purpose will not be achieved.

2. Only those goods can be sold through a Salam contract in which the quantity and quality can be exactly specified e.g. precious/valuable stones cannot be sold on the basis of Salam because each stone differ in quality, size, weight and their exact specification is not possible.

What is Bai Salam?

Salam means a contract or agreement in which advance payment is made for goods/commodities to be delivered at a future date. The seller undertakes to deliver some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of agreement. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. Bai Salam covers approximately everything which is capable of being definitely described as to quantity, quality and workmanship. For Islamic banks, this product is ideal for agriculture financing, however, this can also be used to finance the working capital needs of the customers or Agriculturist.