The price is to be paid in the form of money but can be in the form of ungible goods, including the usufruct of an asset, such as a building. Salam refers to the sale of a determinate thing for an agreed price with immediate payment, with thedelivery of the thing taking place in the future on a specified date. Salam finds support from traditions as well. – The Prophet said: “anyone who pays money in advance for dates (to be delivered later) should pay it for a specified measure and a specified weight and a specified period. The application of salam is regarded as being more appropriate for forward trading in the areas of agriculture and natural resources.
1. The payment of the price by the buyer should be at the time of effecting the sale. 2. Such sale is permissible only in the commodities whose quality and quantity can be specified exactly. For example, precious stones cannot be sold on the basis of Salam, because every piece of precious stone is normally different from the other. 3. It cannot be effected on a commodity whose supply is not certain. For example, if the seller undertakes to supply rice or wheat of a particular field, or the fruit of a particular tree, the Salam will not be valid. Salam Condition/ Structure
4. The quality and quantity of the commodity sought to be sold by Salam must be fully specified. The exact date and place of delivery must be specified in the contract 5. It is not permissible for the buyer of a Salam commodity to sell it before receiving it because that is similar to the prohibited sale of debts before holding. Salam Condition
Salam sale has been found suitable for the finance of agricultural operations. It is also used to finance commercial and industrial activities, especially phases prior to production and export of commodities and that is by purchasing them on Salam and marketing them at a profit. Salam Usage
The Salam sale is also used by banks in financing craftsmen and small producers by supplying them with inputs of production as a Salam capital in exchange for some of their commodities to remarket. The scope of Salam sale is large enough to cover the needs of various people such as farmers, industrialists, contractors or traders. It can cover the finance of operational costs and capital goods. Salam Usage
Parallel salam It is permissible for the buyer – say the client of a bank – to enter into an agreement with a farmer. Here, the bank becomes the seller of salam for acquiring goods similar to the specifications recorded in the first salam contract. This arrangement is technically known as parallel salam.
Parallel salam For example – A can sell forward the commodity to a trader D – A can also be a buyer of a salam from D (now a bank) to make spot payment B – This can be a murabahah contract with a markup – A can avoid parking his own money with B for the entire duration of the original salam (1) .
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- Fall '16