SALAM

Fiqh ul Muaamalth II
IAIB 3101
Lecturer in chargr
RA.Sarjoon
09.06.2011

Introduction
The basic conditions for a validity of a sale in Shriah are
three:
1. The purchased commodity must be existing,
2. The seller should have acquired the ownership of that
commodity,
3. The commodity must be in the physical or constructive
possession of the seller,

There are only two exceptions to this principle in

Shariah:
(1)Salam
(2)Istisna

 Definition &Concept
Seller agrees to supply specific goods to the
buyer at a future date in exchange of an
advanced price fully paid at spot.
Price is in cash but the supply of goods

is deferred.

Background of Salam
Before prohibition of interest farmers used to get
interest based loans for growing crops and
harvesting. After prohibition of interest, they were
allowed to do Salam transactions. This helped
them to get money in advance for their needs.
During the days of our prophet (S.W.) the
caravans used to get interest based loans for
purchasing the commodities. After prohibition of
interest, they were allowed to do Salam.

Purpose of Salam
To meet the needs of small farmers who need money
to grow their crops and to feed their family up to the
time of harvest.
To meet the need of working capital
To meet the needs of liquidity problem.
To meet the need of traders for import and export
business.

Benefits
Salam is beneficial to the seller, because he receives
the price in advance, and it is beneficial to the buyer
also, because normally, the price in salam used to be
lower then the price
in spot sales.

Conditions of Salam
1.

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, because the basic wisdom for allowing Salam is
to fulfill the instant need of the seller. If its not paid in
full, the basic purpose will not be achieved.

2.

Only those goods can be sold through a Salam contract in

which the quantity and quality can be exactly specified
e.g.precious stones cannot be sold on the basis of Salam
because each stone differ in quality, size, weight and their
exact specification is not possible.

3.

All details in respect to quality of goods sold must be

expressly specified leaving no ambiguity which may lead
to a dispute.

4. It is necessary that the quantity of the commodity is agreed

upon in absolute terms. It should be measured or weighed
in its usual measure.
5. Salam cannot be effected on a particular commodity or on
a product of a particular field or farm e.g.. supply of wheat
of a particular field or the fruit of a particular tree since
there is a possibility that the crop is destroyed before
delivery and given such possibility, the delivery remains
uncertain.
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. e.g.
Salam b/w wheat and barley.
8. The commodity of Salam contract should
remain in the market right from day of
contract up to the date of delivery or at
least at the date of delivery.
9. There should
commodity.

be

actual

delivery

of

Difference b/w Salam & Murabaha

Salam

Murabaha

In Salam, purchased
goods are deffered,
price is paid on spot.

In
Murabaha
purchased goods are
delivered at spot, price
may be either on spot
or differed.

In Salam price has to

be paid in full in
advance.

price
may be on spot or
differed.

In

Murabaha

Difference b/w Salam & Murabaha

Salam

Murabaha

Salam is not executed in

the particular commodity
but
commodity
is
specified
by
specifications.

Murabaha can be
executed in particular
commodity.

Salam cannot be effected

in respect of things,
which must be delivered
at spot. e.g Salam b/w
wheat and barley.

Murabaha can be
executed in those
things.

Delivery of Salam goods

Before delivery, goods will remain at the risk
of seller.
After delivery, risk will be transferred to the
purchaser.
Possession of goods can be physical or
constructive.
Transferring of risk and authority of use and
utilization/consumption
are
the
basic
ingredients of constructive possession.

Khiyar (option)
After taking delivery, the purchaser has the
option of defect (Khiyar-e-Aib). Not option of
seeing (Khiyar-e-ruyat)

Options available for purchaser after taking delivery

1. Parallel Salam
After the execution of Salam agreement with one
party, buyer
or seller executes another salam agreement with
third party,
Conditions for Parallel Salam:
(a) there must be two different and independent
contracts, these two contracts cannot be tied up
and performance of one should not be contingent
on the other.
(b) Parallel Salam is allowed with third party only.

Parallel Salam Diagram

1st Salam Seller

2nd Salam Purchaser

Salam
Sale

Parallel
Salam

Delivery of
Commodity

Islamic Bank
Purchaser

Delivery of
Commodity

Islamic Bank
Seller

2.

Agency agreement

If the bank has no expertise to sell the

commodities received under Salam contract, then
the bank can appoint the customer as its agent to
sell the commodity in the market/third party,
subject to Salam agreement and Agency
agreement are separate from each other.

A price must be determined in agency agreement

on which the agent will sell the commodity but if
the price is increased, the benefit can be given to
the agent.

3. Selling in the market

If the bank has expertise in the relevant

commodity, it can sell the commodity in
the market/third party, Or hold the
commodity to fetch a better market price
to maximize its proitf

4. Promise to purchase

Before maturity bank can take promise

to purchase from a third party, after
taking delivery, bank will sell the
same commodity to the promissee,
and he will be bound to purchase the
same according to his undertaking.
This promise should be unilateral.

5. Salam

combining with Murabaha

Bank can sell the Salam commodity to the seller of

Salam on Murabaha subject to following terms:
(a) Salam agreement and Murabaha agreement should be
independent, not contingent and with free will of the
parties.
(b) Murabaha will be executed after taking the possession of
Salam goods.
(c) Bank shall assume the risk of loss b/w taking delivery
and execution of Murabaha.
(d) Bank cannot take undertaking from seller of Salam that
he will purchase the Salam commodity from Bank on Murabaha
basis.

Revoking the Salam contract

After execution of Salam agreement, it
cannot be revoked unilaterally without
mutual consent of both parties.

 Penalty for non performance

Seller can undertake in the Salam agreement that in case

of late delivery of Salam goods, he shall pay to the
charity account maintained by the bank a sum calculated
on the basis of.% per annum for each day of
default,bank will spend this amount in charity purpose
on behalf of the client.
This undertaking is infact a sort of Yameen/Nazar which
is a self-imposed penalty to keep oneself away from
default.

Security
A security in the form of a guarantee, mortgage or
hypothecation may be required for a Salam in
order to ensure that the seller shall deliver the
commodity on the agreed date. In the case of
default in delivery,the guarantor may be asked to
deliver the same commodity and if there is a
mortgage, the buyer can sell the mortgaged
property and the sale proceeds can be used either
to realize the required commodity by purchasing it
from the market or to recover the price advanced
by him.

Scope and potential of Salam

The Salam sale has the flexibility to cover the
needs of various sectors of people such as farmers,
industrialists, contractors, exporters or traders. It
can be used to meet the capital requirements as
well as to meet the cost of operations.
Salam sale is suitable to finance the agricultural
operations where the bank can transact with
farmers who are expected to have the commodity
in penalty during harvest either from their own
crops or crops of others, which they can buy and
deliver in case their crops fail. Thus the bank
renders great services to the farmers in their way
to achieve their production targets.

 Salam sale is also used to finance the commercial

and industrial activities, especially in phases prior
to production and export of commodities and that is
purchasing it on Salam and marketing them for
lucrative prices.
The bank in financing craftsman and small
producers applies the Salam sale by supplying them
with the inputs of production as a Salam capital in
exchange of some for their commodities to market.