Murabaha is a sale-based transaction (a cost-plus sale) which involves the sale of goods/ assets for a price (thaman) consisting of the actual cost and a preset profit mark-up (ribh). The purchase price (actual cost) and the mark-up must be made known to the ultimate buyer (the murabaha buyer) before the contract is entered into. On the other hand, istisna’a (commissioned manufacturing) is a type of sale (bai) whereby the purchaser asks the seller to manufacture a specifically defined product, using raw materials and inputs provided by the seller, at a mutually negotiated price.

In essence, istisna’a can be viewed as a special type of murabaha since it involves, like murabaha, the seller securing some assets based on the buyer’s request. However, the following aspects distinguish one type of sale from the other:

1. In murabaha, the seller is bound to reveal the actual cost of the underlying asset before entering into the contract with the buyer. The two parties also agree on the mark-up that will go to the seller. This is not the case in istisna’a, where the seller is not under any obligation to make his costs known to the buyer. In other words, the seller only quotes the price which includes its profit margin without going into details about the price break down.
2. In murabaha, the underlying is an asset/ commodity that will be delivered to the buyer in the same state of procurement from the supplier (the seller will not apply any labor or modification to the object of sale). The opposite is true in the case of istisna’a. The commissioned seller will need to piece together inputs and parts in order to come up with the desired asset.
3. Istisna’a is a deferred sale by nature. However, murabaha can be transacted on a deferred or spot basis (deferred murabaha or cash murabaha, respectively).