Types of Sukuk in Islamic Finance
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Sukuk al istisna (Islamic project bond)
Istisna is a contract between a buyer and a manufacturer in which the manufacturer agrees to complete a construction project by a future date. The contract requires a fixed price and product specifications that both parties agree to. If the end product doesn’t meet contract specifications, the buyer can withdraw from the contract.
Istisna sukuk are based on this type of contract. The sukuk holders are the buyers of the project, and the obligator is the manufacturer. The obligator agrees to manufacture the project in the future and deliver it to the buyer, who (based on a separate ijara contract) will lease the asset to another party for regular payments.
The process of issuing istisna sukuk begins when the obligator (manufacturer or contractor) and the SPV sign an istisna contract.