| Istisna (construction finance)
In an “Istisna” financing the Bank enters into a contract with the customer requesting the financing ("Al- Mostasna") to execute a specific construction project such as a residential compound, office building , private residence, or an apartment building, etc.. In addition to the standard information required in any financing request, the customer must also provide details about the project itself including:
- Ownership documentation.
- Construction drawings and plans approved by pertinent authorities.
- Bills of quantities and building specifications.
- Project primary feasibility study including estimated revenue for repayment.
Unless the customer requests appointing a specific contractor to execute the work at his or her own risk, the bank usually will appoint a contractor via a formal tender process after which the contract will be assigned to the most qualified bidder.
Once the request for financing is approved, the bank provides the funds needed for the development and construction including materials and wages till the project is completed and delivered to the customer. The bank engineering department supervises the project execution in coordination with the customer’s consultants and the contractor. At completion the customer pays the bank the full “Istisna” amount including the bank profits, or, if pre-approved, in installments.
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