Salam Base Business

Salam Means “To Advance” DefinitionA contract where by the purchaser pays the

price in advance and the delivery of subject matter in postponed to a specified time in future.

It is also known as bay’ salaf or bay’ mafalis.

Benefits

Salam is beneficial to the seller, because he receives the price in advance, and it is beneficial to the buyer also, because normally, the price in Salam used to be lower then the price in spot sales.

Salam Glossary

Rabb-us-salam BuyerMuslam ilaih SellerRa’s-ul-maal Cash Price

The basic purpose of this sale was to meet the needs of small farmers who needed money to grow their crops and to feed their families up to the time of harvest. After the prohibition of riba, they could not take loans. Therefore, it was allowed for them to sell the agricultural products in advance.

Purpose

According to Hadith

Narrated from Ibn ‘Abbas is the Prophetic hadith:“When God’s Messenger came to Madinah, the people were paying one and two years in advance for fruits, so he said: ‘Those who pay in advance for anything must do so for a specified weight and for a definite time.’”

Time • Imam Abu Hanifa that the time of delivery is, at

least, one month from the date of agreement. (beneficial to farmers)

• Imam Malik supports the view that it should not be less than fifteen days, because the rates of the market may change within a fortnight.

Mechanism of Salam

Step 1 : Client sells commodity to Bank on forward basis and receives financing normally for purchasing agricultural inputs like seed, fertilizer, pesticides, diesel for tractor, payment of water charges, labor etc.

Step2: On due date, Client delivers commodities to Bank.

Step3: Bank sells commodities in the market and get profit.

Parallel SalamThe Bank will purchases the items from client A with for full payment. The price and delivery on an agreed specified date The seller delivered the commodity at the agreed time an place. The bank will sell the commodity to any third party sale on credit after taking a delivery form A on the agreed date. Bank may make delivery to commodity to other purchaser. purchaser acquits the purchase and takes delivery and sign promissory notes against payment on an agreed specified time.