Islamic Contract – Bay’ al-Salam: Types of Salam

Islamic Contract – Bay’ al-Salam: Types of Salam
Q1: What are the types of salam contracts?
Answer
There are two main types of salam contracts:

1. Ordinary Salam
2. Parallel Salam

Both involve:

• advance payment;
• future delivery of commodities.

However, they differ in:

• number of parties involved;
• contractual structure.

1. Ordinary Salam
Definition
Ordinary salam involves:
only two contracting parties.
The parties are:

• the buyer (muslim); and
• the seller (muslam ilayh).

Under this arrangement:

• the buyer pays the full purchase price upfront;
• the seller delivers the specified commodities at a future date.

Main Features of Ordinary Salam

• Two parties only.
• Single salam contract.
• Full advance payment compulsory.
• Commodity delivered later.

Case Study 1: Ordinary Salam
A rice farmer requires financing before harvest season.
A trader enters into salam contract with the farmer.
Contract Details

• Commodity: 20,000 kg Grade A rice
• Salam price: RM120,000
• Payment: fully paid immediately
• Delivery date: 1 December 2028

Structure
Buyer (
Muslim
)
Trader
Seller (
Muslam Ilayh
)
Farmer


Analysis

• Only two parties involved.
• Buyer prepays full price.
• Farmer delivers rice later.

Result
✅ Valid ordinary salam contract.


2. Parallel Salam
Definition
Parallel salam consists of:
two separate and independent salam contracts involving three parties.
One party acts:

• as buyer in one salam contract; and
• as seller in another salam contract.

This structure is commonly used in:

• Islamic banking;
• commodity financing.

Important Rule in Parallel Salam
The two contracts:

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

This rule is similar to:
parallel istisnā‘.


Main Features of Parallel Salam

• Three parties involved.
• Two separate salam contracts.
• Contracts must remain independent.
• Common in Islamic finance institutions.

Case Study 2: Normal Parallel Salam
An Islamic bank finances a wheat producer.


First Salam Contract
Between

• Islamic bank;
• wheat farmer.

Contract Terms

• Commodity: 100 tonnes wheat
• Salam price paid by bank: RM400,000
• Delivery period: 6 months

The bank prepays the farmer.


Second Salam Contract
Between

• Islamic bank;
• food processing company.

Contract Terms

• Commodity: 100 tonnes wheat
• Salam selling price: RM480,000
• Delivery period: 6 months

The bank undertakes to supply wheat to processing company.


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


Analysis

• Two independent salam contracts.
• Bank acts:
  • as buyer in first contract;
  • as seller in second contract.
• Contracts are not legally contingent on each other.

Result
✅ Valid parallel salam.


Q2: Why must the two contracts in parallel salam remain independent?
Answer
If the contracts become linked:

• the arrangement may create excessive uncertainty (gharar);
• or resemble prohibited resale before possession.

Therefore:

• each contract must stand independently;
• rights and obligations in one contract cannot automatically depend on the other.

Case Study 3: Invalid Linked Parallel Salam
An Islamic bank tells a wheat buyer:
“We will only deliver wheat to you if our farmer successfully delivers wheat to us.”
Problem
The second contract becomes dependent upon:

• performance of first contract.

Analysis
This violates:

• independence requirement of parallel salam.

Result
❌ Invalid linked structure.


Difference Between Ordinary Salam and Parallel Salam
Ordinary Salam
Number of Contracts
One contract.
Number of Parties
Two parties.
Structure
Direct buyer-seller relationship.
Common Use
Farmer financing.


Parallel Salam
Number of Contracts
Two separate contracts.
Number of Parties
Three parties.
Structure
Intermediary enters:

• one salam as buyer;
• another salam as seller.

Common Use
Islamic banking and commodity financing.


Easy Way to Remember
Ordinary Salam
➡️ “One buyer and one seller.”


Parallel Salam
➡️ “Back-to-back salam contracts with independent obligations.”

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