Mercantile

& Industrial Laws

in Pakistan
“Sale of Future Goods
in Islamic Shariah
committed or not committed”
Topic : Sale of Future goods in
Islamic Shariah committed or not
committed

Course : Mercantile & Industrial Laws

Program : BBA IRM

Semester : 3rd

Presented to : ABC

Presented by : XYZ
 “SALE OF FUTURE GOODS IN
ISLAMIC SHARIAH COMMITTED OR
NOT COMMITTED”

A sale in which a Price is paid for Goods to be delivered Later on is

termed in Islam as Bai Salam.

Bai salam means a contract in which advance payment is made for

goods to be delivered later on. The seller undertakes to supply some
specific goods to the buyer at a future date in exchange of an advance
price fully paid at the time of contract. It is necessary that the quality of
the commodity intended to be purchased is fully specified leaving no
ambiguity leading to dispute. The objects of this sale are goods and
cannot be gold, silver, or currencies. Barring this, Bai Salam covers
almost everything that is capable of being definitely described as to
quantity, quality, and workmanship.

This term refers to advance payment for goods which are to be

delivered later. Normally, no sale can be affected unless the goods are in
existence at the time of the bargain. But this type of sale forms an
exception to the general rule provided the goods are defined and the
date of delivery is fixed. The objects of this type of sale are mainly
tangible things but exclude gold or silver as these are regarded as
monetary values. Barring these, bai 'salam covers almost all things
which are capable of being definitely described as to quantity, quality
and workmanship. One of the conditions of this type of contract is
advance payment; the parties cannot reserve their option of rescinding
it but the option of revoking it on account of a defect in the subject
matter is allowed. It is also applied to a mode of financing adopted by
Islamic banks. It is usually applied in the agricultural sector where the
bank advances money for various inputs to receive a share in the crop,
which the bank sells in the market.

It is a pre-paid purchase.
 Stucture

• Rabb-us-salam : Buyer
• Muslam ilaih : Seller
• Ra's-ul-maal : Cash price
• Muslam fih : Purchased commodity

This mode of financing can be used by the modern banks and financial
institutions especially to finance the agricultural sector. In Salam, the
seller undertakes to supply specific goods to the buyer at a future date
in exchange of an advanced price fully paid at spot. The price is in cash
but the supply of purchased goods is deferred.

Purpose of use:
To meet the need of small farmers who need money to grow their crops
and to feed their family up to the time of harvest. When Allah declared
Riba haram, the farmers could not take usurious loans. Therefore Holy
Prophet allowed them to sell their agricultural products in advance.

To meet the need of traders for import and export business. Under
Salam, it is allowed for them that they sell the goods in advance so that
after receiving their cash price, they can easily undertake the aforesaid
business. Salam is beneficial to the seller because he received the price
in advance and it was beneficial to the buyer also because normally the
price in Salam is lower than the price in spot sales.
 Conditions of Salam:

The permissibility of Salam is an exception to the general rule that

prohibits forward sale and therefore it is subject to strict conditions,
which are as follows:

1. First of all, it is necessary for the validity of Salam that the buyer
pays the price in full to the seller at the time of effecting the sale. It is
necessary because in the absence of full payment by the buyer, it will be
tantamount to sale of a debt against a debt, which is prohibited, as the
basic wisdom behind the permissibility of salam is to fulfill the instant
needs of the seller. If the price is not paid to him in full, the basic
purpose of the transaction will be defeated. Therefore, all the Muslim
jurists are unanimous on the point that full payment of the price is
necessary in Salam. However, Imam Malik is of the view that the seller
may give a concession of two or three days to the buyers, but this
concession should not form part of the agreement.

2. Salam can be effected in those commodities only the quality and

quantity of which can be specified exactly. The things whose quality or
quantity is not determined by specification cannot be sold through the
contract of salam. For example, precious stones cannot be sold on the
basis of salam, because every piece of precious stones is normally
different from the other either in its quality or in its size or weight and
their exact specification is not generally possible.

3. Salam cannot be effected on a particular commodity or on a product

of a particular field or farm. For example, if the seller undertakes to
supply the wheat of a particular field, or the fruit of a particular tree,
the salam will not be valid, because there is a possibility that the crop of
that particular field or the fruit of that tree is destroyed before delivery,
and, given such possibility, the delivery remains uncertain. The same
rule is applicable to every commodity the supply of which is not certain.

4. It is necessary that the quality of the commodity (intended to be

purchased through salam) is fully specified leaving no ambiguity which
may lead to a dispute. All the possible details in this respect must be
expressly mentioned.

5. It is also necessary that the quantity of the commodity is agreed upon

in unequivocal terms. If the commodity is quantified in weights
according to the usage of its traders, its weight must be determined, and
if it is quantified through measures, its exact measure should be known.
What is normally weighed cannot be quantified in measures and vice
versa.

6. The exact date and place of delivery must be specified in the contract.

7.Salam cannot be effected in respect of things, which must be delivered

at spot. For example, if gold is purchased in exchange of silver, it is
necessary, according to Shari'ah, that the delivery of both be
simultaneous. Here, salam cannot work. Similarly, if wheat is bartered
for barley, the simultaneous delivery of both is necessary for the validity
of sale. Therefore the contract of salam in this case is not allowed.

8. The commodity for Salam contract should remain in the market right
from the day of contract up to the date of delivery or at least till the date
of delivery.

9. The time of delivery should be at least fifteen days or one month from
the date of agreement. Price in Salam is generally lower than the price
in spot sale. The period should be long enough to affect prices. But
Hanafi Fiqh did not specify any minimum period for the validity of
Salam. It is all right to have an earlier date of delivery if the seller
consents to it.

10. Since price in Salam is generally lower than the price in spot sale;
the difference in the two prices may be a valid profit for the Bank.

11. A security in the form of a guarantee, mortgage or hypothecation

may be required for a Salam in order to ensure that the seller delivers.

12. The seller at the time of delivery delivers commodities and not
money to the buyer who would have to establish a special cell for
dealing in commodities.
Sales in which a Price is paid for Goods to be Delivered
Later (As-Salam) as quoted in Sahih Bukhari

Volume 3, Book 35, Number 441:

Narrated Ibn Abbas:

Allah's Apostle came to Medina and the people used to pay in

advance the price of fruits to be delivered within one or two years.
(The sub-narrator is in doubt whether it was one to two years or two
to three years.) The Prophet said, "Whoever pays money in advance
for dates (to be delivered later) should pay it for known specified
weight and measure (of the dates)."

_________________________

Volume 3, Book 35, Number 445:

Narrated Ibn 'Abbas:

The Prophet came (to Medina) and he told the people (regarding the
payment of money in advance that they should pay it) for a known
specified measure and a known specified weight and a known
specified period.

_________________________

Volume 3, Book 35, Number 446:

Narrated Shu'ba:

Muhammad or 'Abdullah bin Abu Al-Mujalid said, "Abdullah bin

Shaddad and Abu Burda differed regarding As-Salam, so they sent
me to Ibn Abi Aufa and I asked him about it. He replied, 'In the life-
time of Allah's Apostle, Abu Bakr and 'Umar, we used to pay in
advance the prices of wheat, barley, dried grapes and dates to be
delivered later. I also asked Ibn Abza and he, too, replied as above.'”

_________________________
Volume 3, Book 35, Number 447:

Narrated Muhammad bin Al-Majalid:

Abdullah bin Shaddad and Abu Burda sent me to 'Abdullah bin Abi
Aufa and told me to ask 'Abdullah whether the people in the life-time
of the Prophet used to pay in advance for wheat (to be delivered
later). Abdullah replied, "We used to pay in advance to the peasants
of Sham for wheat, barley and olive oil of a known specified measure
to be delivered in a specified period." I asked (him), "Was the price
paid (in advance) to those who had the things to be delivered later?"
Abdullah bin Aufa replied, "We did not use to ask them about that."
Then they sent me to 'Abdur Rahman bin Abza and I asked him. He
replied, "The companions of the Prophet used to practice Salam in
the life-time of the Prophet; and we did not use to ask them whether
they had standing crops or not."

_________________________

Volume 3, Book 35, Number 448:

Narrated Muhammad bin Abi Al-Mujalid:

as above (446) and said, "We used to pay them in advance for wheat
and barley (to be delivered later). Narrated Ash-Shaibani--"And also
for oil."

_________________________

Volume 3, Book 35, Number 449:

Narrated Ash-Shaibani:

who said "We used to pay in advance for wheat barley and dried
grapes."

_________________________
Volume 3, Book 35, Number 450:

Narrated Abu Bakhtari At-Tai:

I asked Ibn 'Abbas about Salam for (the fruits of) date-palms. He
replied "The Prophet forbade the sale a dates on the trees till they
became fit for eating and could be weighed." A man asked what to be
weighed (as the dates were still on the trees). Another man sitting
beside Ibn 'Abbas replied, "Till they are cut and stored." Narrated
Abu Al-Bakhtari: I heard Ibn Abbas (saying) that the Prophet
forbade ... etc. as above.

_________________________

Volume 3, Book 35, Number 451:

Narrated Abu Al-Bakhtari:

I asked Ibn Umar about Salam (the fruits of) date-palms. He replied,
"The Prophet forbade the sale of dates till their benefit becomes
evident and fit for eating and also the sale of silver (for gold) on
credit." I asked Ibn 'Abbas about Salam for dates and he replied,
"The Prophet forbade the sale of dates till they were fit for eating
and could be estimated."

_________________________

Volume 3, Book 35, Number 452:

Narrated Abu Al-Bakhtari:

I asked Ibn 'Umar about Salam for dates. Ibn 'Umar replied, "The
Prophet forbade the sale (the fruits) of datepalms until they were fit
for eating and also forbade the sale of silver for gold on credit." I
also asked Ibn 'Abbas about it. Ibn 'Abbas replied, "The Prophet
forbade the sale of dates till they were fit for eating, and could be
weighed." I asked him, "What is to be weighed (as the dates are on
the trees)?" A man sitting by Ibn 'Abbas said, "It means till they are
cut and stored."

_________________________
Volume 3, Book 35, Number 453:

Narrated 'Aisha:

Allah's Apostle bought some foodstuff (barley) from a Jew on credit

and mortgaged his iron armor to him (the armor stands for a
guarantor).

_________________________

Volume 3, Book 35, Number 454:

Narrated Al-A'mash:

We argued at Ibrahim's dwelling place about mortgaging in Salam.

He said, "Aisha said, 'The Prophet bought some foodstuff from a
Jew on credit and the payment was to be made by a definite period,
and he mortgaged his iron armor to him."

________________________

Volume 3, Book 35, Number 455:

Narrated Ibn 'Abbas:

The Prophet came to Medina and the people used to pay in advance
the prices of fruits to be delivered within two to three years. The
Prophet said (to them), "Buy fruits by paying their prices in advance
on condition that the fruits are to be delivered to you according to a
fixed specified measure within a fixed specified period." Ibn Najih
said, " ... by specified measure and specified weight."

_________________________

Volume 3, Book 35, Number 456:

Narrated Muhammad bin Abi Al-Mujalid:

Abu Burda and 'Abdullah bin Shaddad sent me to 'Abdur Rahman

bin Abza and 'Abdullah bin Abi Aufa to ask them about the Salaf
(Salam). They said, "We used to get war booty while we were with
Allah's Apostle and when the peasants of Sham came to us we used
 to pay them in advance for wheat, barley, and oil to be delivered
within a fixed period." I asked them, "Did the peasants own standing
crops or not?" They replied, "We never asked them about it."

_________________________

Volume 3, Book 35, Number 457:

Narrated 'Abdullah:

The people used to sell camels on the basis of Habal-al-Habala. The

Prophet forbade such sale. Nafi' explained Habalal-Habala by
saying. "The camel is to be delivered to the buyer after the she-camel
gives birth."

_________________________

Benefits:
There are two ways of benefiting from the contract of Salam:

After purchasing a commodity by way of Salam, the financial institution

can sell it through a parallel contract of Salam for the same date of
delivery. The period of Salam in the second parallel contract is shorter
and the price is higher than the first contract. The difference between
the two prices shall be the profit earned by the institution. The shorter
the period of Salam, the higher the price and the greater the profit. In
this way institutions can manage their short term financing portfolios.

The institution can obtain a promise to purchase from a third party.

This promise should be unilateral from the expected buyer. The buyer
does not have to pay the price in advance. When the institution receives
the commodity, it can sell it at a pre-determined price to a third party
according to the terms of the promise.
 Parallel Salam
1. In an arrangement of parallel Salam there must be two different and
independent contracts; one where the bank is a buyer and the other in
which it is a seller. The two contracts cannot be tied up and
performance of one should not be contingent on the other. For example,
if 'A' has purchased from 'B' 1000 bags of wheat by way of Salam to be
delivered on 31 December, 'A' can contract a parallel Salam with 'C' to
deliver to him 1000 bags of wheat on 31 December. But while
contracting Parallel Salam with 'C', the delivery of wheat to 'C' cannot
be conditioned with taking delivery from 'B'. Therefore, even if 'B' did
not deliver wheat on 31 December, 'A' is duty bound to deliver 1000
bags of wheat to 'C'. He can seek whatever recourse he has against 'B',
but he cannot rid himself from his liability to deliver wheat to 'C'.
Similarly, if 'B' has delivered defective goods, which do not conform to
the agreed specifications, 'A' is still obligated to deliver the goods to 'C'
according to the specifications agreed with him.

2. A Salam arrangement cannot be used as a buy back facility where the

seller in the first contract is also the purchaser in the second. Even if the
purchaser in the second contract is a separate legal entity, but owned by
the seller in the first contract; it would not tantamount to a valid
parallel Salam agreement. For example, 'A' has purchased 1000 bags of
wheat by way of Salam from 'B' - a joint stock company. 'B' has a
subsidiary 'C', which is a separate legal entity but is fully owned by 'B'.
'A' cannot contract the parallel Salam with 'C'. However, if 'C' is not
wholly owned by 'B', 'A' can contract parallel Salam with it, even if
some share-holders are common between 'B' and 'C'.
 Conclusion

Thus it is concluded here from the above data that Sale of Future
Goods ( Bai Salam ) is not prohibited in Islam rather it is committed
in Islam but under some certain terms and conditions . As it is
maintained that this term refers to advance payment for goods which
are to be delivered later. Normally, no sale can be affected unless the
goods are in existence at the time of the bargain. But this type of sale
forms an exception to the general rule provided the goods are
defined and the date of delivery is fixed. The objects of this type of
sale are mainly tangible things but exclude gold or silver as these are
regarded as monetary values. Barring these, bai 'salam covers
almost all things which are capable of being definitely described as to
quantity, quality and workmanship.

As it clearly stated in the following Hadith written in Sahih Bukhari,

Volume 3, Book 35, Number 443:

Narrated Ibn 'Abbas:

The Prophet came to Medina and the people used to pay in advance
the price of dates to be delivered within two or three years. He said
(to them), "Whoever pays in advance the price of a thing to be
delivered later should pay it for a specified measure at specified
weight for a specified period."

So for the sale of future goods one should pay for specified measure
at specified weight for a specified time in which the goods are to be
delivered in future .

_________________________