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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
Definition
Ordinary salam involves:
only two contracting parties.
The parties are:
Main Features of Ordinary Salam
Case Study 1: Ordinary Salam
A rice farmer requires financing before harvest season.
A trader enters into salam contract with the farmer.
Contract Details
Structure
Buyer (
Muslim
)
Trader
Seller (
Muslam Ilayh
)
Farmer
Analysis
✅ Valid ordinary salam contract.
2. Parallel Salam
Definition
Parallel salam consists of:
two separate and independent salam contracts involving three parties.
One party acts:
Important Rule in Parallel Salam
The two contracts:
parallel istisnā‘.
Main Features of Parallel Salam
Case Study 2: Normal Parallel Salam
An Islamic bank finances a wheat producer.
First Salam Contract
Between
Second Salam Contract
Between
Profit Calculation
480{,}000 - 400{,}000 = 80{,}000
480{,}000 - 400{,}000 = 80{,}000
Analysis
✅ Valid parallel salam.
Q2: Why must the two contracts in parallel salam remain independent?
Answer
If the contracts become linked:
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:
This violates:
❌ 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:
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.”
Q1: What are the types of salam contracts?
Answer
There are two main types of salam contracts:
- Ordinary Salam
- Parallel Salam
- advance payment;
- future delivery of commodities.
- 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).
- 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.
✅ 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.
- 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.
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.
- Commodity: 100 tonnes wheat
- Salam price paid by bank: RM400,000
- Delivery period: 6 months
Second Salam Contract
Between
- Islamic bank;
- food processing company.
- Commodity: 100 tonnes wheat
- Salam selling price: RM480,000
- Delivery period: 6 months
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.
✅ 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.
- 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.
This violates:
- independence requirement of parallel salam.
❌ 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.
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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