Islamic Contract – Bay’ al-Salam: Example of Parallel Salam

​Islamic Contract – Bay’ al-Salam: Example of Parallel Salam
Q1: What is parallel salam?
Answer
Parallel salam refers to:
two separate and independent salam contracts involving three parties.
One party acts:

• as buyer in the first salam contract; and
• as seller in the second salam contract.

The two contracts:

• must remain independent;
• cannot be legally linked;
• performance of one contract cannot depend on the other.

Parallel salam is commonly used by:

• Islamic banks;
• commodity traders;
• Islamic financial institutions.

Structure of Parallel Salam
First Salam Contract
Between

• Islamic bank;
• supplier/farmer.

The bank:

• purchases future commodities;
• pays full price upfront.

Second Salam Contract
Between

• Islamic bank;
• final buyer/customer.

The bank:

• undertakes to deliver similar commodities later.

Case Study: Parallel Salam in Wheat Financing
First Salam Contract
Parties
Buyer (
Muslim
)
Islamic Bank
Seller (
Muslam Ilayh
)
Wheat Farmer


Contract Details

• Commodity: 100 tonnes wheat
• Salam purchase price: RM400,000
• Payment: fully paid immediately
• Delivery date: 1 December 2028

The bank pays:

• RM400,000 upfront to farmer.

The farmer promises:

• future delivery of wheat.

Second Salam Contract
Parties
Buyer
Flour Manufacturing Company
Seller
Islamic Bank


Contract Details

• Commodity: 100 tonnes wheat
• Salam selling price: RM480,000
• Payment: fully paid immediately
• Delivery date: 5 December 2028

The flour company pays:

• RM480,000 upfront to Islamic bank.

The bank promises:

• delivery of wheat later.

Profit Calculation
480{,}000 - 400{,}000 = 80{,}000
480{,}000 - 400{,}000 = 80{,}000


Analysis of the Structure
First Contract
The bank acts as:
✅ buyer.


Second Contract
The bank acts as:
✅ seller.


Important Sharī‘ah Rule
The two contracts:

• must remain independent;
• cannot be conditional upon one another.

Thus the bank:

• remains responsible to deliver wheat to flour company,
  even if:
• farmer fails to deliver wheat to bank.

Why Is Parallel Salam Used?
Parallel salam allows Islamic banks to:

• provide financing to producers;
• secure future commodity supply;
• manage liquidity and commodity trading.

It is commonly used in:

• agricultural financing;
• commodity markets;
• Islamic trade finance.

Example of Invalid Linked Parallel Salam
The Islamic bank says to flour company:
“We will deliver wheat only if the farmer successfully delivers wheat to us.”
Problem
The second salam contract becomes dependent upon:

• performance of first salam contract.

Result
❌ Invalid because the two salam contracts are no longer independent.


Easy Way to Understand Parallel Salam
Step 1
Bank buys future commodity from producer.


Step 2
Bank separately sells future commodity to another buyer.


Step 3
Bank earns profit from difference between:

• purchase price;
• selling price.

Important Principle
Parallel salam is permissible because:

• each salam contract stands independently;
• genuine trading risk exists;
• the arrangement supports real economic activity without ribā.