Infrastructure Financing through Islamic
Finance in the Islamic Countries
48
Chart 3.1: Istisna Contract for Infrastructure Finance
Source: Adapted from Ahmed (2009a) and Khaleq et al (2012).
Istisna-Ijarah
In the first phase of this structure, the Funding Company buys the project assets from the
Project Company using an istisna contract and pays for the costs of construction for different
phases of the project. The Project Company builds the assets using an EPC company and
delivers it to the Funding Company after its completion. In the second stage of the contractual
framework, the Funding Company leases the project asset to the Project Company which pays
rent for the duration of the contract. At maturity, the ownership of the project asset is
transferred to the Project Company. The features of the istisna-ijarah structure used for
infrastructure financing is shown in Chart 3.2.
Chart 3.2: Using Istisna-Ijarah for Infrastructure Finance
Source: Adapted from Ahmed (2009a) and Khaleq et al. (2012).
The advantage of the istisna-ijarah financing structure is that it provides flexible returns and
liquidity. The rent can be linked to the market benchmark rate so that when the rate changes
Funding
Company
Project
Company EPC Company
Istisna Parallel Istisna
4
3
2
1
1-Payment for construction of project
2-Delivery of project assets
3-Delivery of project assets
4-Payment for project assets in installments
Funding Company Project Company
EPC Company
Istisna
Ijarah
4
3
2
1
1-Payment for construction of project
2-Delivery of project assets
3-Lease of project assets
4-Rental Payments