ISTISNA' QUESTION 6 IB Islamic Bank (IBIB) of Saudi Arabia enters into an Istisna' contract with the Government of Malaysia on 1st January 2014 for $100 million. IBIB is to construct a 4-storey-hospital to be completed and handed over to the Malaysia government on 31st December 2016. IBIB and AZRB Corp IBIB then entered into a parallel istisna' contract with AZRB Corp for RM 80 million on 28th February 2014. The subcontract restricts any passing over to IBIB of any increase in costs up to an additional $20 million above the initial contract price. The agreement required billings by AZRB to IBIB at the end of each year to be paid promptly by IBIB on the 31st of January in the subsequent year. This was carried out as agreed. During the second year the expected cost of the building went up by $30 million. However, in the third year the total cost was only $90 million and AZRB adjusted the final billing to reflect this. The billings by AZRB to IBIB were as follows: End of 2014 $30 million End of 2015 $30 million End of 2016 the balance IBIB and the Malaysian Government IBIB billed the Malaysian Government as follows: Initial deposit 5% End of Year 1 20% End of Year 2 30% End of Year 3 (when the building is handed over) 45% The Malaysian government paid in the same year except for the last progress payment. Due to budgetary constraints, the Malaysia government could not pay IBIB the payment in Year3. It requested IBIB to defer payment over another 3 years in equal instalments. IBIB then proposed a Murabaha contract to sell the remaining part of the building with a mark-up of 10% per annum over 3 years to the Malaysian government and it was duly agreed. This government paid IBIB the yearly instalments equally over the 3 years starting from 31st December 2017.