Salam - Presentation Transcript

1. Presented by: Shafqat Junaid Khurram

2. Salam
o Salam is a sale whereby the seller undertakes to supply some specific goods to the
buyer at a future date in exchange of an advanced price fully paid at spot.
3.
o Salam
o In Salam, purchased goods are deffered, price is paid on spot.
o In Salam price has to be paid in full in advance.
o Salam is not executed in the particular commodity but commodity is specified by
specifications.
o Salam cannot be effected in respect of things, which must be delivered at spot. e.g
Salam b/w wheat and barley.
o Murabaha
o In Murabaha purchased goods are delivered at spot, price may be either on spot or
differed.
o In Murabaha price may be on spot or differed.
o Murabaha can be executed in particular commodity.
o Murabaha can be executed in those things.

Difference b/w Salam & Murabaha

4. Benefits
o 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.
5. Rulings
o Salam was allowed by the Holy Prophet (SW) subject to certain conditions. The
basic purpose of this sale was to meet the needs of small farmers who needed
money to grow their crops and to feed their families upto the time of harvest.
After the prohibition of riba, they could not take usurious loans. Therefore, it was
allowed for them to sell the agricultural products in advance.
6. Conditions
o (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.
o (purpose : fulfill the instant needs of the seller.)
o (2) Salam can be affected in those commodities only the quality and quantity of
which can be specified exactly.
o (purpose : eliminate disputes on quality of product)
o (3) Salam cannot be affected on a particular commodity or on a product of a
particular field or farm.
o (purpose : the delivery becomes uncertain)
o (4) It is necessary that the quality of the commodity is fully specified.
 o (purpose : leaving no ambiguity)
7.
o (5) It is also necessary that the quantity of the commodity is agreed upon in
unequivocal terms.
o (purpose : exact measure should be known)
o (6) The exact date and place of delivery must be specified in the contract.
o (7) Salam cannot be affected in respect of things which must be delivered at spot.
8.
o All the Muslim jurists are unanimous on the principle that salam will not be valid
unless all these conditions are fully observed, because they are based on the
express ahadith ofthe Holy Prophet (SW). The most famous hadith in this context
is the one which the Holy Prophet (SW) has said:
o “ Whoever wishes to enter into a contract of salam, he must effect the Salam
according to
o the specified measure and the specified weight and the specified date of delivery.”
9. Point of differences
o The commodity (for which salam is effected) remains available in the market
right from the day of contract upto the date of delivery.
o (Hanafi school)
10.
o Availability of the commodity at the time of the contract is not a condition for the
validity of salam . What is necessary, according to them, is that it should be
available at the time of delivery.
o (Shafi’, Maliki, and Hanbali)

Point of differences

11. Time
o Hanafi and Hanbali schools that the time of delivery is, at least, one month from
the date of agreement.
o (beneficial to farmers)
o Imam Malik supports the view that it should not be less than fifteen days, because
the rates of the market may change within a fortnight.
o According to the Hadith , is that the time of delivery must be clearly defined. The
parties may fix any date for delivery with mutual consent.
12. Salam as a Mode of Financing
o This mode of financing can be used by the modern banks and financial
institutions, especially to finance the agricultural sector.
o In order to ensure that the seller shall deliver the commodity on the agreed date,
they can also ask him to furnish a security
13. Parallel Salam
o The bank enters two different contracts.
o In one of them, the bank is the buyer and in the second one the bank is the seller
o They cannot be tied up in a manner that the rights and obligations of one contact
are dependent on the rights and obligations of the parallel contract.
 o Each contract should have its own force and its performance should not be
contingent on the other.
14.
o Delivery of Commodity

Mr. A Mr. B Islamic Bank Islamic Bank Purchaser Seller 1 st Salam Seller 2 nd Salam
Purchaser Delivery of Commodity

15.
o 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.
16.
o 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.