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BAY' AL-SALAM
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BAY' AL-SALAM

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  • 1. MAHYUDDIN KHALID  emkay@salam.uitm.edu.my
  • 2. CONTENT  DEFINITION DEFINITION  EVIDENCE EVIDENCE  PILLARS OF AL-SALAM  OBJECTIVE OF BAY‘ AL-SALAM OBJECTIVE  CONDITION OF BAY‘ AL-SALAM CONDITION  DISADVANTAGE OF BAY‘ AL-SALAMCOMPARISONAPPLICATION 2
  • 3. INTRODUCTION  This contract is crucial during the time of prophet DEFINITION hood and at the time where agricultural sector become outstanding and supreme. EVIDENCE  The wisdom of making salam permissible lies in the OBJECTIVE fact that salam facilitates a types of financing for people in need of it. CONDITION  By using salam contract, the buyer may benefit from its permissibility as well, by acquiring theCOMPARISON commodity at a price below the market price.APPLICATION 3
  • 4. DEFINITION  Literally salam means giving (‗ita‘), advance (taslif) DEFINITION and leaving EVIDENCE  Technically:  Sale contract over prescribed commodity sold as a OBJECTIVE deferred liability on one party, in exchange for a price that is received during the contract session CONDITION  Maliki defined it as a sale in which capital sum (price) is paid in advance and the object of sale isCOMPARISON deferred to a specified term.  AAOIFI defined salam as the purchase ofAPPLICATION commodity for deferred delivery in exchange for immediate payment. 4
  • 5. DEFINITION  Bay‘ as-Salam or Salam means a contract in which DEFINITION advance cash payment is made for goods to be delivered later on. EVIDENCE  The seller undertakes to supply some specific goods OBJECTIVE to the buyer at a future date in exchange of an advance price fully paid at the time of contract. CONDITION  Salam- also know as sales by order.COMPARISONAPPLICATION 5
  • 6. EVIDENCE  Al-Quran DEFINITION  . EVIDENCE  lbnu Abbas commented that: ‗I bears the witness that al-Salaf (Al-Salam) stipulated for a stated term had been made legal OBJECTIVE by Allah in His holy book and His permission is in it‖. He then recites the above verse. CONDITION  Hadith  Narrated by lbn Abbas: The Messenger of Allah (s.a.w) cameCOMPARISON to Medina and the society used to pay in advance the price of fruits to be delivered within one or two years (the subAPPLICATION narrator is in doubt whether it was one to two years or two to three years)  The Prophet S.A. said, ―Whoever pays money in advance for dates (to be delivered later) should pay it for known specified weight and measure (of the dates). 6
  • 7. EVIDENCE  Ijma‘ DEFINITION  Every single jurist that we came across had given their consensus with regards to the permissibility of Bay‘ Al- EVIDENCE Salam particularly because the product in sale is one of counter-values in a contract (similar to the OBJECTIVE permissibility of postponing the monetary payment which is one of the counter — value as well). CONDITION  There is also the need of the people in it. The owners of the agricultural products and businesses also neededCOMPARISON some financing to support themselves or to fund their crops until the day of harvesting. Hence, it is madeAPPLICATION permissible to fulfill these needs. 7
  • 8. NATURE OF BAY’ AL-SALAM  Salam transaction occurs if the buyer has paid the DEFINITION purchase price to the seller in full at the time of sale. This is necessary so that the buyer can show that EVIDENCE they are not entering into debt with a second party OBJECTIVE in order to eliminate the debt.  Salam is actually an exception from the general CONDITION ruling on the illegality of selling non—existence items (Bay‘ Ma‘dum) since it can achieve certainCOMPARISON economic objectives, as a rukhsah (exception) and an assistance for the people.APPLICATION  Debt does not necessarily involve cash money but it can also involves every single item and property by the business society as a tradable item. 8
  • 9. PILLARS OF AL-SALAM  Rabb as-salam/ Musallim DEFINITION  The Buyer EVIDENCE  Muslam Ilaihi  The Seller OBJECTIVE  Ra‘s al-Mal  The Price CONDITION  Al-Musallim FihCOMPARISON  The Product  SighahAPPLICATION  Ijab (Offer)  Qabul (Acceptance) 9
  • 10. FLOWS OF BAY’ AL-SALAM 1) Ijab (Offer) DEFINITION 3) Ra‘s al-Mal EVIDENCE (Price) OBJECTIVE Rabb as-salam/ Muslam Ilaihi CONDITION Musallim (Seller) (Buyer)COMPARISONAPPLICATION Musalllim Fih 4) (Product) 2) Qabul (Acceptance) 10
  • 11. TYPES OF SALAM CONTRACT DEFINITION Ordinary salam contract Parallel salam contract • The normal salam • Contractual agreement EVIDENCE contract that involves consists of two different two transacting parties; and independent OBJECTIVE the buyer (musallim) and contracts; one in which the seller (musllam ilayh) the bank is a buyer and CONDITION the other in which the bank is a seller.COMPARISON • The two contract cannot be tied up and performance of oneAPPLICATION contract should not be contingent upon the other. 11
  • 12. THE OBJECTIVES OF BAY’ AL-SALAM  Provide the financing for small and medium DEFINITION enterprises  The economic reality underlying the contract of Salam, EVIDENCE the ordering of goods to be delivered later for a price paid in advance, was the financing of the business of a OBJECTIVE small trader or artisan by his customers. CONDITION  Benefits the trader or producer  Provides Islamically accepted financing alternative andCOMPARISON avoids any involvement in riba  Benefits the purchaserAPPLICATION  Provides goods and products at a discounted price in return for the willingness of the purchaser to help the financing of the business venture. 12
  • 13. CONDITIONS OF AL-SALAM DEFINITION The jurists from various mazhab had agreed that Bay‘ Al-Salam is permissible provided EVIDENCE that it specifies these six aspects (4 Ps + 2 Qs): OBJECTIVE Product: The types and kinds of goods involved in the trade. Period: The duration of the contract and its date of delivery. CONDITION Price: The amount of capital or price paid for the contract.COMPARISON Place: Place of delivery for the merchandise when it is due.APPLICATION Quality: The characteristics and specifications of every item. Quantity: The quantity of goods ordered by the buyer. 13
  • 14. CONDITIONS OF AL-SALAM DEFINITION Conditions related to the price (ra‘s al-mal) • The price must be clearly determined and paid in full EVIDENCE by the buyer at the time of undertaking the sale to avoid later dispute. OBJECTIVE • The seller must take possession of the price in full before daperting one another; OTHERWISE it will be CONDITION tantamount to the sale of debt for a debt which is prohibited.COMPARISON • Maliki jurist allowed it to be paid within few days as long as it is not stipulated as conditions.APPLICATION • If the price is ribawi item, it is not allowed to be exchanged for another ribawi item to avoid riba. Eg: wheat with barley. 14
  • 15. CONDITIONS OF AL-SALAM DEFINITION Conditions related to the purchased commodity (mussalam fih) EVIDENCE • Salam can be effected on commodity whose quality and quantity can be clearly specified; commodities which quality and quantity cannot be specified cannot be sold through salam. OBJECTIVE • The commodity must be vastly available in the market at the time of contract until the time of delivery, to ensure the capability of the trader to deliver the product. CONDITION • The quantity, weight and measure of the commodity must be agreed upon in equivocal terms.COMPARISON Conditions related to the date and place of deliveryAPPLICATION • The exact date and place of delivery must be specified in the contract • Scholars differ on the shortest duration of time of delivery either 3 days, more than half a day thirty days or up to the contracting parties to decide. 15
  • 16. DIFFERENCES OF BAY’ AL-SALAM AND BAY’ ISTISNA’  Bay‘ Al-Salam and Bay‘ Al-Istisna‘ are both deferred DEFINITION delivery contract, however both instruments have its own application. EVIDENCE  Salam is equivalent to a forward sales for agricultural products while, OBJECTIVE  Istisna‘ is a forward sales for manufacturing or construction contract. CONDITION BAY’ AL-SALAM BAY’ ISTISNA’ Salam can be effected on any thing, The subject of Istisna is always aCOMPARISON no matter whether it needs thing which needs manufacturing manufacturing or not.APPLICATION It is necessary for Salam that the Payment for Istisna can be made in price is paid in full in advance staggered basis. The contract of Salam, once The contract of Istisna can be effected, cannot be cancelled cancelled before the manufacturer unilaterally starts the work
  • 17. DIFFERENCES BETWEEN BAY’ AL-SALAM & NORMAL SALES BAY’ AL-SALAM ELEMENT NORMAL SALES DEFINITION Must specified the duration DURATION Does not permit any time of the contract and its date frame EVIDENCE of delivery OBJECTIVE A contract in which advance NATURE A permanent contract CONDITION cash payment is made for without any specified goods to be delivered later period of expirationCOMPARISON on At a discount – cheaper than PRICING Market rate – based on theAPPLICATION normal pricing ability to pay cash Any thing, no matter it SUBJECT Physical Goods and needs manufacturing or not. property 17
  • 18. APPLICATION  This concept rarely used by Islamic banks because it DEFINITION does not facilitate many advantages as compared to other concepts. EVIDENCE  The prices of purchased commodities in as-salam should be paid in advance while the subject matter will be OBJECTIVE delivered at a later date.  In general it clearly differs from numerous Islamic bank CONDITION products, which provides better position for the customer who are in need, in which they would obtain the desired commodity with a deferred payment term.COMPARISON  Islamic banking product which are based on this concept are:APPLICATION  Hybrid Salam Financing  Salam Financing Working Capital  Parallel Salam Financing 18
  • 19. HYBRID SALAM FINANCING DEFINITION Seller EVIDENCE OBJECTIVE 4 1 CONDITIONCOMPARISON 4APPLICATION Bank Customer 2 19
  • 20. SALAM FINANCING WORKING CAPITAL DEFINITION Agency appointment Normal sale Customer A 3 EVIDENCE OBJECTIVE 2 1 Salam contract CONDITIONCOMPARISONAPPLICATION BANK Group of Purchaser 20
  • 21. PARALLEL SALAM FINANCING DEFINITION Salam A 1 EVIDENCE BANK 2 Agent OBJECTIVE CONDITION 2 Customer ACOMPARISON Salam B 3APPLICATION Customer C 21
  • 22. END OF CHAPTER DEFINITION EVIDENCE OBJECTIVE CONDITION COMPARISONAPPLICATION 22