Salam

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Salam

Salam

Overview:

Meaning

Example

Delivery of salam Goods

Condition of salam sale

The legality of salam sale

Difference between Salam and Istisna

Meaning

Salam refers to a contract for sale where the seller agrees to supply some specific goods to the buyer at a future date in exchange for an advanced price fully paid on the spot. The buyer pays cash on the spot but the delivery of good is deferred. It should be noted that the salam contract cannot be cancelled once signed. The seller and the buyer are known as Al Muslam Ilaihi and Al-Muslim or Rab al-salam, respectively.

The legality of Salam contract

In the holy Quran Allah says:

“O you who believe! When you contract a debt for a fixed period, write it down…” (02:282).

Ibn Abbas (May Allah be pleased with him) narrated: The Prophet Muhammad (Peace be upon Him) 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.”

(Al Bukhari, Book 35, Hadith 443)

Purpose of Salam Islamic Finance

  • The main purpose of salam was to meet the daily needs of the poor farmers as they need money to grow their crops to feed their families before harvesting of crops. After the prohibition of interest, it would not allow them to take interest-based loans. So, it was permitted to sell agricultural products in advance.
  • The traders of Arabia needed money to undertake their business transaction. But, after the prohibition of interest, they could not borrow from the usurers. So, it was permitted to sell the goods in advance.
  • Salam was beneficial to the seller as he received the price in advance, and it was also beneficial to the buyer because normally, the price in salam used to be lower than the price in spot sales.

Conditions in Salam Contract:

  • For the salam contract to be valid, it is necessary that the buyer makes payment in full to the seller at the spot. If it’s not paid in full, the basic purpose will not be achieved.
  • The quantity and quality of salam good should be exactly specified leaving no ambiguity as it may result in a dispute.

For example, Precious stones cannot be sold on the basis of salam contract as each stone is usually different in quality, size, weight and their exact specification is not possible.

  • The exact date and place of delivery must be specified in the contract.
  • The commodity for salam contract should remain in the market a just after the day of the contract and up to the date of delivery.
  • In order to ensure that the seller delivers the goods at the time of delivery, security in the form of a guarantee or mortgage may be required.
  • It is not necessary for salam contract that the seller is a manufacturer or producer of the asset. The seller may be an agent to deliver the asset.
  • If there is late delivery of the goods, the supplier pays a certain amount as a penalty to the buyer. This amount must be used for a charitable purpose and not for the buyer to consume.

Delivery of Salam Goods:

In salam contract, goods will remain at the risk of the seller before delivery. After delivery, risk will be transferred to the purchaser. Transferring of risk and authority of use and consumption are the basic ingredients of constructive possession as possession of goods can be physical or constructive.

Difference between Salam and Istisna

Basis of Difference Salam Istisna
Subject The subject can be anything. It may be a manufacturing commodity or not. The subject of istisna is always a thing which needs manufacturing,
Price It is the requirement of salam that the price is paid fully in advance on the spot. In istisna, paying price full in advance is not necessary.
Cancellation This contract cannot be cancelled unilaterally,  The contract of istisna can be cancelled before the manufacturer begins the work.
Time of delivery The time of delivery is an important part of the sale in  and it is fixed.  in istisna that the time of delivery may not be fixed.