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Salam

Khairuddin Zakaria
khairuddinzakaria@gmail.com

Slam & Salaf

‫اﻟﺴﻠﻒ‬/‫اﻟﺴﻠﻢ‬
‫أﺳﻠﻢ وﺳﻠﻢ وأﺳﻠﻒ‬
aslama/salama/aslafa

Salam Salam Salaf ٍ


Handed over the capital
Hijaz Language is more general And
in the contract session
Salaf Salaf comprehensive because
Iraqi language Advance of the capita it is related to loan

Salaf
It is used in two concept

Quard Hasan Advance capital


Free interest loan In Salam contract

1
Notion of this
contract

According to the majority Inb hazm and Ibn taymiay


of the jurist this contract is an Their view is this is independent
Exception to the general rules Contract and it is not an
and against analogy Exception to the general of
It is considered as ruksa Islamic commercial law

Pillar of Salam

Contracting parties:
Statement/Sigah
Musalam/Rabu al salam: Offer & acceptance Subject matter
Buyer Valid with salam/salaf/sale Musala fihi: goods sold
Shafi: only salam/salaf Capital
Musalam Ilaihi
Seller

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Condition of salam

Musalam fihi
Condition of capital
Goods sold

1: Known 1: To be deferred to
an agreed date in the future.
2: payment be made on 2: must be known (spect).
the spot in full 3: The future must be known

Maliki can be delay 4: Be able to be handed over


3 days 5: Place of delivery

Q1
 Explain the meaning of the Slam contract
and discuss its legality in Islamic law of
contract.

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A1
 Meaning of Salam
 Salam or salaf is defined as the sale or purchase of a
deferred item in exchange for an immediate price.
 the price is paid in advance while the commodity is deferred
to an agreed date in the future.
 These features of salam can be observed in the following
definitions:
 Shafi’
Shafi’is,
is, definition of salam as: “a sale of a well-
well-defined
commodity to be delivered by the seller in the future”
future”.
 Hanbalis defined salam as: “a sale whereby the seller
undertakes to supply some specific goods to the buyer at a
future date in exchange for an advanced price fully paid on
the spot”
spot”.
 Malikis defined salam as: “a sale in which the capital sum
price is paid in advance, and the object of sale is deferred to
a specified term.”
term.”

Cont.
 From the above definitions, we can summarise that:
 salam is sale with advance payment for future
delivery.
 the price is paid in cash, but the supply of the
purchased goods is deferred.
 The forward buyer is called rabb al- al-salam.
salam.
 the forward seller is al-
al-muslam ilayhi.
ilayhi.
 the cash price is ra’
ra’s al-
al-mal.
 the purchased commodity is termed as al- al-muslam
fihi.
fihi.
 the vendor has no title over the sale object but
undertakes to make it available to the purchaser.

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 LEGALITY OF SALAM
 This mode of sale was also prevalent even before the advent of
Islam.
 When the Prophet (pbuh(pbuh)) migrated to Madinah,
Madinah, his Companions
brought this mode of sale to his notice and sought his guidance.
guidance.
The Prophet (pbuh
(pbuh)) then named it as salaf (literally means
borrowing) or salam and allowed it with certain conditions.
 salam referred in the Quran in the general meaning of contract
that creates future obligations (dayn
(dayn).
).
 In Surah al-
al-Baqarah 2: 282. Allah says that:“
that:“O you who believe!
When you deal with each other in transactions involving future
obligations in a fixed period of time, put them in writing.”
writing.”
 The phrase “transactions involving future obligation”
obligation”.
 in the context of the above verse also includes the salam
contract in which the delivery of the subject matter of salam
occurs in the future.
 Ibn Abbas also referred to this verse when explaining the salam
contract.
 The practice of salam was also qualified by the Prophet (pbuh (pbuh))
during his life time.

Cont.
 Ibn Abbas narrated that when the Prophet (pbuh (pbuh)) came to
Madinah,
Madinah, and found its inhabitants using forward (salam
(salam))
contracts in fruits for one, two, and three years, he (pbuh
(pbuh)) said:
“Whoever enters into a forward contract let him specify a
known volume or weight, and a known term of deferment”
deferment”.
 the Muslim jurists unanimously agree on the permissibility of
salam.
salam.
 Ibn Al-
Al-Mundhir said: “All the scholars from whom we learnt
unanimously agreed that forward contracts (salam(salam)) are
permissible, and acknowledged people’people’s need for this
contract.”
contract.”
 this permissibility was based on the needs of the growers of
fruits and vegetables, who needed funds to spend on
themselves, their plants and their business.
 This contract is a special device and a special form of license
(rukhsah)
rukhsah) given to the people to meet their economic needs
and facilities in their daily lives.

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Q2
 Salam is considered as an exception to
the general principle of Islamic law of
contract. In what aspects does salam differ
from that of other types of contracts?

A2
 DIFFERENCES BETWEEN SALAM AND OTHER TYPES OF SALES
 there are a few distinctive features of salam that are different from an
ordinary sale.
 1: in a salam sale it is necessary for the parties to precisely fix a
period for delivery of the goods
 but in an ordinary sale, it is not necessarily so.
 2: in a salam sale, a commodity not in the possession of the seller
can be sold.
 in an ordinary sale, “the seller cannot sell what he does not have”
have”.
 3: the salam commodities are confined only to the goods which can
be precisely determined in terms of quality and quantity.
 in an ordinary sale everything that can be owned is saleable, except
except
the commodities which are prohibited by the Shariah.
Shariah.
 4: salam sale cannot take place between identical goods for example,
wheat for wheat or rice for rice.
 the sale of identical goods is allowed in an ordinary sale.
 5: in salam sale, payment must be made in advance.
 in an ordinary sale, the payment may be deferred or made at the time
of delivery of the goods.

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Cont.
 Salam & istisna:
istisna:
 there are some comparative differences between istisna
and salam.
salam.
 1: in the subject matter of istisna is the thing or goods
which is to be manufactured.
 but in salam the commodities are normally agricultural
products, metals etc.
 2: the price in salam sales is paid in advance.
 it is not necessary in istisna where the payment may be
made at the time of the contract or progressively
according to the stage of completion of the manufacturing
process.
 3: the parties in the contract of salam,
salam, cannot unilaterally
terminate the contract without the agreement of the other.
 the parties in an istisna contract are allowed to cancel the
contract before the manufacturer starts the work.

Q3
 Explain the importance of the salam
contract for both the buyer and the seller
as well as the market at large.

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A3
 Benefit of Salam
 Salam is very beneficial to both parties.
 It is beneficial to the seller, because he
receives the price in advance.
 it is beneficial to the buyer also, because
normally, the price in salam tends to be lower
than the market price compared to a spot sale.
 salam has developed and become a facility for
a large number of businesses not only in the
past but also in modern times.

Q4
 Discuss the effects of early and late
delivery of salam commodities.

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A4
 Time of Delivery of Salam Commodities
 The nature of a salam specifies that the delivery of goods is
to be deferred.
 The issue is how long is the deferment period (between the
conclusion of the contract and the time of delivery) in the
case of salam?
salam?
 The Hanafis and Hanbalis ruled that the term of a salam
should be approximately one month, since that is the
earliest for an item to be considered deferred.
 If the time of delivery is fixed earlier than one month, salam
is not valid.
 Imam Malik is of the opinion that it should not be less than
fifteen days, because the rates of the market may change
within a fortnight.

Cont.
 The view that there should be a minimum period of salam
was however, opposed by other jurists, like Imam Shafi’
Shafi’i and
some of the Hanafis.
Hanafis.
 They argued that the Prophet (pbuh
(pbuh)) did not specify a
minimum period for the validity of salam.
salam.
 The only condition, according to the Hadith,
Hadith, is that the time of
delivery must be clearly defined.
 Therefore, no minimum period can be prescribed.
 The parties may fix any date for delivery with mutual consent.
 The contemporary jurists have adopted this view as being
more suitable for modern transactions.
 thus have prescribed different periods which range between
one day to one month.
 sometimes it is more in the interest of the seller to fix an
earlier date.
 Therefore, the case should be decided on a case-
case-to-
to-case
basis.

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Q5
 Is it necessary that the payment of salam
be made on the spot and in full? Discuss
and highlight the views of muslim jurists on
this issue.

A5
 There is a conditions that the price must be known to the contracting
contracting parties.
 Usually capital is paid in the form of cash.
 but if it is paid in other forms, its type, kind, specification and quantity must be
known.
 Debts cannot constitute capital for a salam sale.
 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.
 If the price is not paid to him in full, the purpose of the transaction
transaction will be
defeated.
 The immediate and full payment of the price is also necessary.
 because in the absence of full payment by the buyer, it will tantamount
tantamount to sale of
a debt against a debt (bai(bai’’ al-
al-dayn bi al-
al-dayn),
dayn), which is prohibited by the Prophet
(pbuh).
pbuh).
 since salam by its nature includes an element of uncertainty (gharar (gharar),
), where the
object of sale may fail to exist, it is not permissible to add another
another gharar by
deferring the delivery of the price.
 This view has been agreed by all the Hanafis,
Hanafis, Shafi’
Shafi’is,
is, and Hanbalis
unanimously.
 However, Imam Malik is of the view that the seller may give a concession of two
or three days to the buyer, but this concession should not form part of the
agreement.

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Q6
 Discuss the procedure to terminate the
salam contract. What are the legal effects
of the termination?

A6
 TERMINATION OR REVOCATION OF SALAM
 the seller in a salam contract is bound to deliver the
goods according to the agreement made.
 there may be situations when it is not possible for
him to honour his commitment; for example if he
dies, or if the salam goods are destroyed.
 In the event of death of the seller, the contract of
salam will be terminated and the buyer has the right
to claim the return of his money from the heirs.
 in the event of the death of the buyer, the contract
will remain operative.
 Damage to the goods will nullify the contract only
when it exceeds the normal extent of damage.

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Cont.
 In the case where the salam contract is terminated through
either one of the modes, the buyer will receive back his
advancement.
 The majority of Muslim jurists are of the view that it is allowed
allowed
for both parties to fully or partially cancel the contract of salam
upon their agreement to do so.
 The cancellation is, allowed before the delivery of salam
commodities but not after the delivery.
 In the case of the entire cancellation of the contract, the buyer
buyer
must repay the full amount of the capital or the price of salam.
salam.
 In the case of partial cancellation, that is, the cancellation of
of
delivery of part of salam commodities, the buyer has the right of
repayment for a corresponding part of the price or capital of
salam (ra’
ra’s al-
al-salam).
salam).
 the view that supports partial revocation was not agreed to by
Imam Malik and the judge Ibn Layla.
Layla.
 They submit that the buyer should recover the whole price paid
based on the Hadith.
Hadith.

Q7
 Explain the possible mechanisms for the
islamic banking and the Islamic financial
institutions to provide financing based on
the concept of salam.

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A7
 SALAM AS A MODE OF FINANCING
 Modes of Payment
 the buyer must pay the whole amount in cash or in the forms
of goods at the appointed time when concluding the contract.
 The purpose is to ensure prompt payment and to evade the
violation of the sale of debt for a debt (bay
(bay’’ al-
al-dayn bi al-
al-
dayn)
dayn) as prescribed in the Hadith.
Hadith.
 In a bank’
bank’s financing mode however, payment in cash is not
done, and moreover it is not practical.
 Thus, it will not be desirable for a bank to pay hard cash to
the seller.
 but the bank may credit the amount into the seller’
seller’s account,
or in the case of long-
long-term financing, it may grant a line of
credit, or the bank may issue a pay order in favour of the
seller which may be cashable on demand.
 In all such cases money remains in the bank but it is placed
at the disposal of the seller.

Cont.
 Date of Delivery
 According to Muslim jurists, the time for delivery of
salam commodities may not be specifically fixed.
 The approximate time for delivery is permissible.
 for example, the parties agree that the delivery of
salam commodities should be in the next “harvest
time”
time”.
 the approximate time for delivery of the goods may
not be convenient to the bank.
 It may be advisable, for the bank to stipulate the
specific time and date for the delivery of the goods,
provided that the goods required are available in the
market.

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Cont.
 Revocation of the Contract
 the parties have the right to rescind the contract of salam before the
delivery of the goods, in which the seller is required to return the advance
paid.
 the parties may be taking advantages over the fluctuation of the price of
the commodities.
 The seller may be withdraw from the contract if the market price of the
contracted goods is higher at the time of delivery than what the bank has
paid to him.
 the bank may tend to rescind the contract if the price of the contracted
contracted
goods goes down at the time of delivery.
 Looking into the possible manipulation of the flexible revocation
revocation right, it
seems that it is preferable that the salam be made irrevocable by the
agreement of the parties concerned.
 The only exception which may be considered is the unavailability of the
commodities in the market and the inaccessibility of the commodities
commodities to
the seller, in the case where the bank refuses to extend the period
period of
delivery.
 In the case of revocation of the contract, the bank will charge the same
amount that it had paid to the seller.

Cont.
 Security for Salam
 Since the delivery of the goods in salam is in the
future.
 banks and financial institutions are allowed to
request the seller to furnish a security, which may be
in the form of a guarantee or in the form of a
mortgage, to cover the risk of non delivery.
 In the case of default, the guarantor may be asked to
deliver the same commodity.
 If there is a mortgage, the buyer or the financier may
sell the mortgaged property and the sale proceeds
can be used either to realise the required commodity
by purchasing it from the market, or to recover the
price advanced by him.

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Q9
 What is a parallel salam or salam muwazi?

A9
 the parallel contract of salam (salam muwazi).
muwazi).
 After purchasing a commodity by way of salam. salam.
 the bank may sell it through a parallel contract of salam for the same
date of delivery.
 The period of salam in the second (parallel) transaction being shorter, the
price may be a little higher than the price of the first transaction.
transaction.
 the difference between the two prices shall be the profit earned by the
financial institution.
 the bank can obtain a promise to purchase from a third party.
 This promise should be unilateral from the expected buyer.
 Being merely a promise, and not the actual sale, the buyers will not have
to pay the price in advance.
 Therefore, a higher price may be fixed and as soon as the commodity
commodity is
received by the institution.
 it will be sold to the third party at a pre-
pre-agreed price according to the
terms of the promise.
 In an arrangement of parallel salam,
salam, the bank enters into two different
contracts.

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Cont.
 In one, the bank is the buyer and in the second, the bank is
the seller.
seller.
 Each one of these contracts must be independent of the other.
 They cannot be tied up in a manner that the rights and
obligations of one contract are dependant on the rights and
obligations of the parallel contract.
 Each contract should have its own force and its performance
should not be contingent on the other.
 Parallel salam is allowed with a third party only.
 The seller in the first contract cannot be made purchaser in the
parallel contract of salam,
salam, because it will be a buy-
buy-back
contract, which is not permissible in Shariah.
Shariah.
 Even if the purchaser in the second contract is a separate legal
entity, but is fully owned by the seller in the first contract, the
arrangement will not be allowed, because in practical terms it
will amount to a ‘buy-
buy-back’
back’ arrangement.

Cont.
 For example:
 A has purchased 1,000 bags of wheat by
way of salam from B, a joint stock company.
 B has a subsidiary C, which is a separate
legal entity but is fully owned by B.
 A cannot contract the parallel salam with C.
 if C is not wholly owned by B, A can contract
parallel salam with it, even if some
shareholders are common between B and C.

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Thank You
‫ﺷﻜﺮا ﺟﺰﯾﻼ‬

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