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Islamic Economic Studies Vol. 4, No. 2, May 1997 ISTISNA‘ FINANCING OF INFRASTRUCTURE PROJECTS * MUHAMMAD ANAS ZARQA Projects that do not generate explicit income cannot be possibly financed on a profit-sharing basis. A suitable interest-free alternative method of financing is presented here, based on istisna‘ sale contract (commissioned or pre-ordered productio). Various aspects of using istisna‘ as a financing tool for infrastructural projects are discussed, including: (a) the illiquidity of the resulting financial claims and its implications, (b) suitability for financial intermediaries, and (c) the possibility of indexation of the resulting financial claims and their use as a monetary policy tool. 1. INTRODUCTION There are several Islamic alternatives to interest-based financing. First and foremost, there are the participatory modes such as partnership and mudarabah. Second there are the sale-based modes such as salam, and bay‘ muajjal. Third, there are the rent-based modes. Participatory modes have many desirable economic and shari’ah advantages and are the “first-best” Islamic alternative to interest-based financing. The scope of participatory modes, however, as is now widely appreciated, is limited to financing ventures that generate explicit income or output that can then be “shared” among the investor and the other parties to the venture. Investments that do not generate explicit income (let us call them: mute investments) cannot be financed on participatory basis. Examples are: social investments that generate pure publi