Contract

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Structure of Islamic Finance

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Salam Contract ( Bai’al Salam)
Bai-Al Salam, also known as Bai-salaf is the purchaser of a
commodity for deferred delivery in exchange for immediate
payment.
Price is known as the Ras-ul-mal or Salam Capital, is paid
at the time of contract.
Delivery of the item to be sold, known as Al- Muslam Fihi,
which is deferred.
The seller and the buyer are known as Al-Muslam Ilaihi and
Rab al-salam, respectively.

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Important Principles of Salam Contract
Contracting Parties: The parties who are involved in a
Salam contract are the seller (Muslam Ilaihe) and
the purchaser ( rabb-u-salam).
The subject matter of Salam: The subject matter of
Salam includes the object (Al- Muslam Fihi) and
the price (Ras-ul-mal)

4. Important Principles of Salam Contract
1) Object: can be goods that may be weighed,
measured or counted and not permitted to be an
identified and specific thing like “this rice” or cannot be
stipulated as a produce of specific piece of land. Or the
fruit of this tree.
Not to be any article which cannot be delineated in terms
of their description like precious stones, jewellery and
antiques.
Must be the kind of article for which a specification may
be drawn up properly so that the seller may be held
responsible for its conformity to the specifications and be
commonly available under normal circumstances at the
place where it should be on the delivery date.
The purchaser cannot sell the subject matter before
taking possession of it except through a parallel Salam 4

5. Important Principles of Salam Contract
1) Price: The price for Salam goods can be in
the form of goods such as wheat and other
cereals, or items of material value such as
livestock.
It can also be in the form of a usufruct from
certain assets,
But it must be known to the contracting parties
and must be paid in full to the seller at the time
of concluding the contract
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6. Important Principles of Salam Contract
Conclusion of Salam: Like other sale contracts,
a Salam contract can be concluded by offer and
acceptance.
However, it may be concluded using the word
Salam or Salaf or sale or any term that indicates
sale of a prescribed commodity for deferred
delivery in exchange for immediate payment of
the price.
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7. Important Principles of Salam Contract
d. Delivery of the subject matter: Date of delivery must be specific
and known.
The seller must deliver the Salam goods to the purchaser on the
due date and the purchaser must accept the goods if they meet the
specifications.
If it is inferior, then the purchaser has the option to either reject or
accept the goods.
The delivery of Salam goods may take place before the due date.
If the seller fails to his obligation, or insolvency, time extension for
delivery should be grantetd but no penalty in case of delay.
In case all or part of Salam goods is not being available to the seller
on the due date, the buyer may wait until availability or may cancel
the contract and may also replace Salam goods by other goods.
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8. Structure of Salam Contract
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9. Mechanism of Salam Contract
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1. A customer wants financing and approaches the
Islamic Bank.
2. The customer (as seller) enters into a Salam sale
contract with the Islamic Bank (as purchaser).
3. The Islamic bank pays the full purchase price in
advance to the customer for the specified commodity
to be delivered in future.
4. On the delivery date which is predefined, the
customer delivers the commodity to the Islamic Bank..

10. 3. Application of Salam contract
Working capital financing
Financing for agriculture production
Personal Finance
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