SALAM &

ISTISNAA

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Bai Salam

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Presentation Overview
Definition
Purpose
Conditions of Salam
Benefits
Parallel Salam

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Salam - Definition
Seller undertakes 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.

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Purpose
To meet the need 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 traders for import and
export business.

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Conditions of Salam
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.

In the absence of full payment, it will be

tantamount to sale of a debt against a debt
which is expressly prohibited by the Holy
Prophet.

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Conditions of Salam
Only those goods can be sold through a Salam
contract in which the quantity and quality can be
exactly specified.
eg. precious stones cannot be sold on the basis of
Salam because each stone differ in quality, size,
weight and their exact specification is not
possible.

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Conditions of Salam
Salam cannot be effected on a particular
commodity or on a product of a particular field
or farm
e.g.. supply of wheat of a particular field or the
fruit of a particular tree since there is a
possibility that the crop is destroyed before
delivery and given such possibility, the delivery
remains uncertain.

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Conditions of Salam
All details in respect to quality of goods sold
must

be

expressly

specified

leaving

no

ambiguity which may lead to a dispute.

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 only.

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Conditions of Salam
The exact date and place of delivery must be
specified in the contract.
The commodity for Salam contract should
remain in the market right from day of
contract up to the date of delivery or at least
at the date of delivery.

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Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Conditions of Salam
A security in form of a guarantee, mortgage
may be required for a Salam in order to
ensure that the seller delivers.

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Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Parallel Salam
In an arrangement of parallel Salam there
must

be

two

different

and

independent

contacts; one where the bank is a buyer and

the other in which it is a seller.

The two contracts cannot be tied up and

performance of one should not be contingent
on the other.

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Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

SALAM AS A MODE OF FINANCE

Using Salam as mode of finance Bank follows
the following steps;
Bank pays the full price against a commodity
which will be delivered in future.
A distinct party undertakes to purchase the
commodity of same quantity and quality without
referring to the first contract. Like wise Bank can
make a parallel salam contract matching the
terms of first salam contract without referring to
it.

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

SALAM AS A MODE OF FINANCE

continued

Bank gets the delivery of the commodity and

passes on to the other buyer in parallel salam
OR enters in to a sale agreement with the
promiser OR makes the seller of the first salam
its agent to sell the commodity

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

ISTISNA

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Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Istisna - Definition
Istisna is sale transaction where commodity is
transacted before it comes into existence.
It is an order to producer to manufacture a
specific commodity for the purchaser.

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Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Difference b.w Istisna & Salam Definition

ISTISNA
The subject on
which transaction of
Istisna is based, is
always a thing which
needs to be
manufactured.
Price must be fixed,
but need not to be
paid in advance

SALAM
Subject can be
anything.
Price has to be
paid in full in
advance

Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Difference b.w Istisna & Salam Definition

SALAM
ISTISNA
Time of Delivery does Time of delivery is an
essential part of the
not have to be fixed
sale
The contract can be
cancelled before the The contract cannot be
cancelled unilaterally.
manufacturer starts
working.

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Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Istisna as a mode

House Financing
BOT Arrangement
Government Projects

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Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited

Questions??

Jazak-a-Allah-u-taala

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Courtesy of 1st Ethical Charitable Trust in partnership with Centre for Islamic Economics & Meezan Bank Limited