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Islamic Finance

  Islamic Finance   |   Terms
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  • November 9, 2022
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Penalty Clause in Istisna’a

It is permissible by shari’a to include in an istisna’a contract a stipulation of a fair penalty clause in the form of an agreed amount of money which will compensate the ultimate purchaser (al-mustasni’) if delivery of the underlying (subject-matter) by the manufacturer (al-sani’) is overdue or delayed due to negligence or oversight by the manufacturer, but not by force majeure or intervening contingencies. Nevertheless, it is in violation of shari’a precepts for the manufacturer to stipulate a penalty clause against the manufacturing orderer (the ultimate purchaser) who defaults on payment.


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