lecture no.07 bai salam

7/27/2019 Lecture No.07 Bai Salam

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SALAM Introduction

The basic conditions for a validity of a sale in Shriah 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,

There are only two exceptions to this principle in

Shariah: (1)Salam

(2)Istisna



• 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.



Background of Salam

• Before prohibition of interest farmers used

to get interest based loans for growing cropsand harvesting. After prohibition of interest,they were allowed to do Salam transactions.This helped them to get money in advance

for their needs.

• During the days of our prophet (S.W.) thecaravans used to get interest based loans for purchasing the commodities. After prohibition of interest, they were allowed todo Salam.



Purpose of Salam

• To meet the needs of small farmers

who need money to grow their crops

and to feed their family up to the time

of harvest.

• To meet the need of working capital

• To meet the needs of liquidity

problem.• To meet the need of traders for import

and export business.



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.



Conditions of Salam(1) It is necessary for the validity of Salam that the buyer

pays the price in full to the seller at the time of

effecting the sale, because the basic wisdom forallowing Salam is to fulfill the instant need of theseller. If its not paid in full, the basic purpose willnot be achieved.

(2) Only those goods can be sold through a Salamcontract in which the quantity and quality can beexactly specified e.g. precious stones cannot be soldon the basis of Salam because each stone differ inquality, size, weight and their exact specification is

not possible.

(3) All details in respect to quality of goods sold must beexpressly specified leaving no ambiguity which maylead to a dispute.



(4)It is necessary that the quantity of the commodity is

agreed upon in absolute terms. It should be measured

or weighed in its usual measure.

(5)The exact date and place of delivery must be specified

in the contract.

(6) there should be actual delivery of commodity.



Delivery of Salam goods

• Before delivery, goods will remain at the

risk of seller.

• After delivery, risk will be transferred to

the purchaser.

• Possession of goods can be physical.



Security

A security in the form of a guarantee, mortgage

may be required for a Salam in order to ensure

that the seller shall deliver the commodity on

the agreed date. In the case of default in

delivery, the guarantor may be asked to deliverthe same commodity and if there is a mortgage,

the buyer can sell the mortgaged property and

the sale proceeds can be used either to realize

the required commodity by purchasing it fromthe market or to recover the price advanced by

him.



Introduction

Istisna’ is sale transaction where commodity is

transacted before it comes into existence.

Definition

It is an order to producer to manufacture a

specific commodity for the purchaser.

Istisna



Conditions of Istisna

(1) The subject of Istisna is always a thing which

needs manufacturing.

(2) Manufacturer use his own material.

(3) Quality and Quantity should be agreed in

absolute term

(4) purchase price should be fixed with mutual

consent



Price of Istisna

• price of istisna may be in the form of money,

commodity.

• Price of Istisna is can be paid in installments.

• The installments may be tied up with different

stages of projects.

OptionWhen the required goods have been manufacturedby the manufacturer purchaser can exercise hisoption of defect.



Revoking of Istisna

• The contract of Istisna can be cancelled one-

sidedly before the manufacturer starts

working.• After starting the work, Istisna cannot be

cancelled one-sidedly.



Difference between Istisna’ & Salam

ISTISNA

• The subject of istisna is

always a thing which

needs manufacturing.• The price in istisna does

not necessarily need to

be paid in full in

advance.

SALAM

• The subject can be any

thing.

• The price has to be paid

in full in advance.



Difference between Istisna’ & Salam

ISTISNA

• Time of Delivery does

not have to be fixed

• The contract can be

cancelled before the

manufacturer starts working.

SALAM

• Time of delivery is an

essential part of the sale

• The contract cannot be

cancelled individually.



Security

A security in form of a guarantee, mortgage orhypothecation may be required for Istisna inorder to ensure that the manufacturer shalldeliver the commodity on the agreed date, in thecase of default in delivery, the guarantor may beasked to deliver the same commodity, and if there is a mortgage, the buyer can sell themortgaged property and the sale proceed can be

used either to realize the required commodity bypurchasing it from the market, or to recover theprice advanced by him.



Time of Delivery

In order to ensure that the goods will be delivered withinthe specified period, some modern agreement of thisnature contain a penalty clause to the effect that in casethe manufacturer delays the delivery after the appointed

time, the price shall be reduced by a specified amountper day.



Delivery of Manufacturing goods

• Before delivery, goods will remain at the risk of seller.

• After delivery, risk will be transferred to thepurchaser.

• Possession of goods can be physical.• If manufactured goods are delivered before agreed

date, purchaser can refuse to accept the goods.



• Abdur Rasid Mirza, Economic and Financial Analyst

• Associated Consulting Engineers – ACE (Pvt.) Ltd.

• Faculty Member of University of Lahore, School of

Lahore, School of Accountancy and Finance• Research Scholar (Islamic Banking and Finance)

• Mobile no. 0300-4210261

•Email Address: [email protected]

• Email address: [email protected]

Author Introduction

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mailto:[email protected]




lecture no.07 bai salam

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