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-SALAM
COMPARISON
APPLICATION
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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 the
COMPARISON commodity at a price below the market price.
APPLICATION
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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 is
COMPARISON deferred to a specified term.
AAOIFI defined salam as the purchase of
APPLICATION
commodity for deferred delivery in exchange for
immediate payment.
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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.
COMPARISON
APPLICATION
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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) came
COMPARISON
to Medina and the society used to pay in advance the price of
fruits to be delivered within one or two years (the sub
APPLICATION
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).
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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 needed
COMPARISON some financing to support themselves or to fund their
crops until the day of harvesting. Hence, it is made
APPLICATION permissible to fulfill these needs.
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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 certain
COMPARISON 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.
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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 Fih
COMPARISON
The Product
Sighah
APPLICATION Ijab (Offer)
Qabul (Acceptance)
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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 one
APPLICATION
contract should not be
contingent upon the
other.
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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 and
COMPARISON
avoids any involvement in riba
Benefits the purchaser
APPLICATION Provides goods and products at a discounted price in
return for the willingness of the purchaser to help the
financing of the business venture.
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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.
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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.
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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 delivery
APPLICATION
• 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.
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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 a
COMPARISON
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 expiration
COMPARISON on
At a discount – cheaper than PRICING Market rate – based on the
APPLICATION normal pricing ability to pay cash
Any thing, no matter it SUBJECT Physical Goods and
needs manufacturing or not. property
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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
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20. SALAM FINANCING WORKING CAPITAL
DEFINITION Agency
appointment Normal sale
Customer A 3
EVIDENCE
OBJECTIVE 2 1
Salam contract
CONDITION
COMPARISON
APPLICATION BANK Group of Purchaser
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21. PARALLEL SALAM FINANCING
DEFINITION
Salam A
1
EVIDENCE
BANK
2
Agent
OBJECTIVE
CONDITION
2 Customer A
COMPARISON
Salam B 3
APPLICATION
Customer C
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22. END OF CHAPTER
DEFINITION
EVIDENCE
OBJECTIVE
CONDITION
COMPARISON
APPLICATION
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