 In this module, we would start looking into applications of Istisna as an Islamic mode of finance. There are various applications of Istisna in Islamic retail banking, in Islamic capital markets, in Islamic alternative markets like Istisna has a lot of applications in project finance and so on. But before we go into these applications, it is important for us to remind ourselves of the basic structure of an Istisna contract. An Istisna contract is a contract that allows a buyer to buy something from a seller who would be making that product over a certain time period. And in this time period, the buyer would be making payments bit by bit as per the progress of the manufacturing process or construction. So this sale is relevant to activities like construction of homes and commercial buildings. Of course, it has relevance to shipbuilding and it has quite a lot of relevance to aircraft manufacturing industry as well. As an Islamic mode of financing, its use in construction industry is quite prevalent and some other activities involving construction of big infrastructure projects. So it's about manufacturing, it's about construction, it's about making the things. Let us look into a basic plain vanilla kind of structure of Istisna. By way of this example, a customer approaches an Islamic bank for financing of construction of a house. The bank accepts the financing application. So one, two, then the bank gets an estimate of construction costs and agrees on a price with a construction company. For example, it could be 50 lakh rupees. The construction company says we are going to develop this piece of land into a house as per your specifications. So this estimate and agreement is there. The bank then enters into another Istisna agreement with the customer. So the first is this agreement with the construction company and then of course the other arrangement is based on Istisna with the customer. In fact, these two, this activity as well as the activity or the contract with the customer could be on Istisna. So both these could be on the basis of Istisna. The price agreed in the Istisna agreement with the customer is expected to be higher than the price of construction. The bank has already agreed with the construction company which was 70 lakh rupees. So 50 lakh is the construction cost. 70 lakh is the price which the bank would agree with the customer. The bank and the customer agree on a payment schedule. Of course, the objective of the customer is to get financing. So the bank has construction costs of 50. It sells the project to the customer for 70 lakhs. This 20 lakh is actually the profit of the bank and the bank would be getting this profit because it would be offering a financing facility to the customer. The customer pays to the bank as per the payment schedule. Concurrently, the construction company continues the construction work and once the house is built, the construction company hands over the project to the bank and the bank then hands over the house, constructed house to the customer. The customer continues to pay as per the Istisna agreement between it and the bank. So even after the house has been delivered, the customer would continue to pay because this was part of the provisions of the Istisna agreement between the bank and the customer. So in terms of diagrams, we are using this diagram whereby this customer has a piece of land and he wants to develop this piece of land into a house to live in. Islamic Bank is there because the customer actually doesn't have the money to pay for construction costs. Now if the Islamic Bank is willing to finance the construction activity on an Istisna basis, then it will be done. So as I explained previously, this Istisna agreement is between the Islamic Bank and the construction company and pursuant to this Istisna agreement, the bank would be paying 50 lakh rupees to the construction company. This Istisna agreement doesn't matter because effectively these two Istisna agreements are going to be signed almost at the same time. This is why sometimes it is called Istisna, parallel Istisna structure as well. So this Istisna agreement would ensure that the bank gets the property developed and Istisna agreement 1 would ensure that the customer would get the home delivered by the Islamic Bank. Why these two Istisna agreements are entered into? Of course when bank enters into an Istisna agreement with the customer, it's not going to construct the house by itself. Bankers go to construction at the end. So the bank would actually enter into a construction agreement based on Istisna or it could be another simple construction agreement as well. So given that the bank is not a construction company, there is a need for this second Istisna agreement. Now how would the payment take place and where is the financing? Let's assume that the house will be ready in 5 months. First went to Istisna agreement 1. The customer would be paying easy monthly installments to the bank over a period of 5 months. We assume that the bank gives 2 lakh rupees to the bank every month. So in these 5 months, the customer would have paid 10 lakh rupees to the bank. At this time, the bank has invested 50 lakhs on construction. Percent to Istisna agreement 2, the bank would be paying on a monthly basis as per the progress of the construction, 10 lakh, 10 lakh, 10 lakh, 10 lakh, 5 times. 50 lakhs went to the construction company and only 10 lakhs went to the bank. Now Istisna agreement between the customer and the bank has a price of 70 lakhs. So when the house is delivered, both the bank and the customer would agree on a payment schedule. They start me but even after the house has been delivered, they would agree on a payment schedule. Maybe the bank says you can pay the remaining 60 lakh rupees in 3 years or 5 years or 7 years. This is how the payment would take place and once the customer has paid all the money, he would come out of this financing arrangement. This is how Istisna is used as an Islamic mode of financing by Islamic banks or other Islamic financial institutions which are involved in property finance.