The Possibility for Implementing Istisna’ as an Alternative Islamic House Construction Financing Product in Indonesia

Mohammad Haikal, Octa Bagus Ivanandy, Puspa Amelia Wirya Simabur, Aishath Muneeza


Istisna’ is an exceptional contract of sale in Islamic banking and finance used for manufacturing or construction. This contract is considered as an exceptional contract because the general rule applicable to sale transactions in shariah is that at the time of the sale, the subject matter must exist. Currently the practice by the Islamic banks in Indonesia is to provide house construction financing via Murabahah and Musharakah Mutanaqisah. The objective of this paper is to discuss the possibility of using Istisna’ contract as one of the alternative Islamic house construction financing in Indonesia by providing examples from a jurisdiction that practices Istisna’ contract in this regard. This is a qualitative exploratory research. Due to lack of availability of information in the matter from the secondary sources, interviews have been conducted with the relevant professionals to obtain concise facts. The outcome of the paper reveals that though there are some risks in practically implementing Istisna’ for house construction financing in Indonesia like how it is practices in Maldives, there are some risks that will be faced by the Islamic banks which can be mitigated. The ways to mitigate these risks are suggested in this paper. It is anticipated that the outcome of this paper will assist the stakeholders of Islamic banking in Indonesia to consider Istisna’ as a possible contract to structure product for house construction financing.


Indonesia, Islamic house financing, Istisna’, Maldives, risk management



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