This document discusses the concept of Salam in Islamic finance. It begins by covering the basic conditions for a valid sale under Sharia law. It then defines Salam as a contract where the buyer pays in advance for goods to be delivered at a future date. The document outlines the Sharia legitimacy of Salam based on references from the Quran and hadith. It also discusses the wisdom and benefits of allowing Salam contracts, including fulfilling sellers' cash needs. The key conditions of a Salam contract are that the commodities must be specified and fungible goods, and that the price is paid in full upfront.

1. Rana Muneer Ahmad
M.Phil. IBF

3. 
 In This Topic We Will Cover:
1. The basic conditions for a validity of a sale in Sharia
2. Definition of Salam
3. Sharia Legitimacy of Salam
4. Wisdom behind Salam permissibility
5. Specific Conditions of Salam
6. Market Practice
Topic Outline

4. 
The basic conditions for a validity of a sale in
Sharia are three:
(1) The purchased commodity must be existing,
(2) The seller should have acquired the ownership of that
commodity,
(3) The commodity must be in the physical or constructive
possession of the seller,
These conditions are compulsory to avoid the possibility of
Gharar and dispute regarding the subject matter.
The basic conditions for a
validity of a sale

5. 
There are only two exceptions to this principle
in Sharia:
(1) Salam
(2) Istisna
 Some conditions ,which make the contract free from
Gharar, have been imposed in these two contracts.
 Delivery of the subject matter is deferred to the
future in both of these sales, so these are known as
forward sales.

6. 
Definition &Concept :
Seller agrees to supply specific goods to the buyer at a future
date in exchange of an advanced price fully paid at spot. Price
is in cash but the supply of goods is deferred.
Definition &Concept SALAM

7. 
 Rabb-us-salam : Buyer ‫السلم‬ ‫رب‬
 Muslam ilaih : Seller ‫الیہ‬ ‫مسلم‬
 Ra’s-ul-maal : Cash price ‫المال‬ ‫راس‬
 Muslam fih : Purchased commodity ‫فیہ‬ ‫مسلم‬
Terms used in Salam

8. 
Salam: Shariah Legitimacy

9. 
 Hazrat Ibn e Abbas (RA) said “this verse revelation for the
particular purpose of making salam permissible”.(AAOIFI
ST)
 Ibn Abbas reported, the Prophet (PBUH) came to Medina
on Hijrat and found that people were selling dates for
deferred delivery (salam) over a period of one or two
years. The Prophet (PBUH) said:
“whoever pays for dates on a deferred delivery basis (salam)
should do so on the basis of specified scale and weight” In
other version of the Hadith “whoever pays on deferred
delivery basis should do so on the bases of a specified scale,
weight and date of delivery”.
Salam: Shariah Legitimacy

10. 
 As reported by Imam Bukhari in his Sahih, Abdur
Rahman bin Abza and Abdullah bin Abi Aufa,
Companions of the holy Prophet (SAWW), upon
asking about Salam goods said, “ when the peasants
of Syria came to us, we used to pay them in advance
for wheat, barley and oil to be delivered within a
fixed period”. They were again asked, “Did the
peasants own standing crops or not?” They replied,
“We never asked them about it”.
 It means non existence of commodity in salam was
allowed.
Salam: Shariah Legitimacy

11. 
Background Wisdom of allowing of Salam:
 Before prohibition of interest farmers used to get
interest based loans for growing crops and
harvesting and during the days of our prophet
(S.A.W) the caravans used to get interest based loans
for purchasing the commodities. After prohibition of
interest, they were allowed to do Salam.
Wisdom behind Salam
permissibility

12. 
Benefits of Salam can be divided into two categories:
- Benefits of salam in Buyer’s perspective
- Benefits of salam in Seller’s perspective
 In buyer’s perspective ,he will get the commodity at a
price below the market price and have no fear of
price rise in future.
Benefits of slam

13. 
In Sellers perspective: Sellers can
 meet the needs of money to grow their crops and to
feed their family up to the time of harvest.
 meet the needs of working capital
 meet the needs of liquidity problem.
 meet the needs for their import and export business.
Benefits of slam

14. 
(1) Conditions regarding to SM :
 Only those fungible ( Misli) goods can be sold
through a Salam contract in which the quantity and
quality can be exactly specified. SM should be
measured ,weighted or counted in its usual measure.
 Differences existed among the jurists regarding the
list of commodities that can be sold under Salam
contract. But they have come to the conclusion that
all goods that can be standardized into identical units can
become the subject of Salam.
Conditions of Salam

15. 
It is necessary for the validity of Salam that the buyer
pays the price in full to the seller at the time of affecting
the sale, because the basic wisdom for allowing Salam
is to fulfill the instant need of the seller. If it’s not paid
in full, the basic purpose will not be achieved.
Moreover it will be the sale of debt to debt. However
delay in payment is allowed with the condition that it
will be paid in two or three days. But it will be with
mutual consent.
(2) Conditions regarding to
the Payment:

16. Cash payment is not necessary in Salam
.Islamic bank may credit the seller’s
account or issue a pay order in favor of the
seller, which may be cashable on demand.
If the price of salam is in the form of
fungibles (Misli) goods then the kind, type,
specification’s and quantity of these shall be
clearly defined.