​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.

​Islamic Contract – Bay’ al-Salam: Main Applications of Salam in Contemporary Islamic Finance
In contemporary Islamic finance, salam is mainly used for:

• short-term financing;
• agricultural financing;
• commodity financing;
• microfinancing; and
• ṣukūk structuring.

1. Short-Term Financing
Explanation
Salam is commonly used for:
short-term liquidity and financing needs.
This is because:

• payment is made immediately;
• delivery occurs within a relatively short future period.

It is suitable for:

• seasonal production;
• short production cycles;
• commodity trading.

Example
An Islamic bank enters salam contract with a wheat producer.
Contract Details

• Salam price paid immediately = RM500,000
• Wheat delivery after 6 months

Analysis
The producer obtains:

• immediate short-term working capital.

Result
✅ Salam used as short-term financing.


2. Agricultural Financing
Explanation
Salam is especially suitable for:

• farmers;
• agricultural producers.

Farmers often require:

• funds before harvest season
  for:
• seeds;
• fertiliser;
• labour;
• irrigation.

Salam enables:

• upfront financing;
• future crop delivery.

Example
A rice farmer requires financing before planting season.
Contract Details

• Commodity: 20 tonnes rice
• Salam price = RM80,000
• Delivery after 8 months

The Islamic bank:

• pays RM80,000 immediately.

The farmer:

• delivers rice after harvest.

Result
✅ Salam used for agricultural financing.


3. Commodity Financing
Explanation
Salam is widely used in:
commodity trading and financing.
This involves:

• standardised fungible commodities.

Examples:

• wheat;
• sugar;
• crude palm oil;
• metals.

Example
An Islamic financial institution purchases:

• 100 tonnes crude palm oil through salam.

Contract Details

• Salam price = RM400,000
• Delivery after 5 months

Analysis
The producer obtains:

• production financing.

The institution secures:

• future commodity supply.

Result
✅ Salam used for commodity financing.


4. Microfinancing
Explanation
Salam is highly suitable for:

• small farmers;
• rural entrepreneurs;
• low-income producers.

This is because salam:

• provides upfront capital;
• avoids ribā-based borrowing.

It supports:

• financial inclusion;
• small-scale economic activity.

Example
A chilli farmer requires:

• RM15,000 for farming operations.

An Islamic microfinance institution enters salam contract.
Contract Details

• Commodity: 3 tonnes chillies
• Salam price = RM15,000
• Delivery after 4 months

Result
✅ Salam used for Islamic microfinancing.


5. Ṣukūk Structuring
Explanation
Salam can also be used in:
ṣukūk al-salam structures.
Under this arrangement:

• investors provide funds upfront;
• future commodities are delivered later.

The structure is commonly used for:

• commodity-based financing.

Example
A government-linked entity issues:

• RM100 million ṣukūk al-salam.

Structure

• Investors pay capital immediately.
• Commodities delivered after 6 months.
• Commodities subsequently sold in market.

Result
✅ Salam applied in ṣukūk structuring.


Important Principle
Salam is important in Islamic finance because it:

• provides working capital;
• supports real economic activity;
• assists producers and farmers;
• promotes Sharī‘ah-compliant financing.

However:

• strict conditions apply regarding:
  • full upfront payment;
  • commodity specification;
  • delivery certainty;
  • possession.
  
  

​Islamic Contract – Bay’ al-Salam: Date and Place of Delivery


Q1: Why must the delivery date be specified in salam?


Answer


The delivery date must be clearly known to:

• eliminate uncertainty;

• avoid disputes between contracting parties.

This is important because:

• salam involves future delivery of goods.

⸻


Scholars’ Views on Minimum Delivery Period


Muslim jurists differ regarding:

• the minimum permissible delivery period.

Some opinions include:

• minimum three days;

• more than half a day;

• at least thirty days;

• determined by agreement of parties.

⸻


AAOIFI Requirement on Delivery Date


According to AAOIFI SS No. 10 (Para 3/2/9):


the delivery date must be clearly known and free from ambiguity.


⸻


Example


Valid


“Delivery on 1 December 2028.”


Invalid


“Delivery sometime in future.”


⸻


Q2: Why must the place of delivery be specified?


Answer


The place of delivery should be specified especially where:

• transportation;

• shipping;

• logistics

are involved.


This clarifies:

• delivery obligations;

• transfer of possession;

• transportation responsibility.

⸻


Example


Valid Delivery Clause


“Delivery at Port Klang on 1 December 2028.”


⸻


Q3: Can the buyer sell the salam commodity before possession?


Answer


No.


According to AAOIFI SS No. 10 (Para 4/1):


the buyer cannot sell the muslam fīh before taking possession.


This is because:

• the buyer has not yet obtained possession;

• selling before possession may create uncertainty.

⸻


Example: Invalid Sale Before Possession


A buyer purchases:

• 100 tonnes wheat under salam.

Before delivery:

• the buyer sells the exact wheat to another party.

Problem


The buyer has not yet possessed the wheat.


Result


❌ Not permissible.


⸻


Example: Sale After Possession


After:

• wheat is delivered;

• buyer takes possession,

the buyer may:

• sell;

• lease;

• transfer the wheat.

Result


✅ Permissible after possession.


⸻


Important Principle


Salam is permitted as:


an exception to the normal prohibition of selling future goods.


Therefore:

• strict rules apply regarding:

• delivery date;

• delivery place;

• possession.

These rules minimise:

• uncertainty (gharar);

• disputes;

• injustice.

Islamic Contract – Bay’ al-Salam: Commodity (Muslam Fīh
) in Salam Contract
​
Q1: What is muslam fīh
in a salam contract?
Answer
Muslam fīh refers to:
the commodity or goods to be delivered in the future under a salam contract.
Since salam involves:

• deferred delivery of goods,

the commodity must be:

• clearly specified;
• standardised;
• deliverable;
• recognised by the Sharī‘ah.

Q2: What are the conditions of the salam commodity?
Answer
The salam commodity must fulfil several conditions.


1. Commodity Must Be Valuable and Sharī‘ah-Compliant
The commodity must:

• have commercial value;
• be lawful according to Sharī‘ah.

Examples
✅ Rice
✅ Wheat
✅ Palm oil
✅ Sugar
Invalid Examples
❌ Wine
❌ Pork


2. Commodity Must Be Clearly Specifiable
The commodity’s:

• type;
• quality;
• quantity;
• grade;
• specifications

must be clearly known.
This avoids:

• uncertainty (gharar);
• disputes.

Example
Valid Specification

• 10,000 kg Grade A Thai rice.

Invalid Specification

• “some good rice.”

The second description is too vague.


3. Quantity Must Be Precisely Determined
The quantity must follow market custom.
If Sold by Weight
Weight must be specified.
Example

• 5,000 kg wheat.

If Sold by Volume
Exact volume must be specified.
Example

• 2,000 litres palm oil.

If Sold by Count
Exact quantity must be specified.
Example

• 1,000 identical bricks.

Important Rule
What is normally sold:

• by weight → must remain by weight;
• by volume → must remain by volume.

4. Commodity Must Be Generally Available in Market
The commodity should normally:

• exist in market supply at delivery time.

This reduces:

• risk of non-delivery.

Example
Valid
Standard market wheat.
Invalid
Rare collectible item unavailable in market.


5. Commodity Cannot Be a Specific Identified Asset
Salam must involve:
a liability upon the seller,
not:
a specific identified asset.


Example
Invalid Salam
“I sell you THIS specific car after 6 months.”
Problem
The contract concerns:

• a specific identified asset.

Result
❌ Invalid salam contract.


AAOIFI Requirements Regarding Muslam Fīh
1. Salam Cannot Be for Specific Asset
(Para 3/2/3)
Example
❌ “This exact vehicle.”


2. Currency, Gold, and Silver Restrictions
(Para 3/2/4)
If salam capital is:

• currency;
• gold;
• silver,

then the salam commodity cannot also be:

• currency;
• gold;
• silver.

This avoids:

• ribā.

Example
A buyer pays:

• gold now
  for:
• gold later.

Result
❌ Invalid salam.


3. Commodity Must Be Precisely Specifiable
(Para 3/2/5)
The seller must be capable of delivering:

• according to exact specifications.

4. Commodity Must Be Clearly Known
(Para 3/2/6)
Specifications must eliminate:

• ambiguity;
• uncertainty.

Case Study: Valid Salam Commodity
A buyer enters salam contract for:

• 50 tonnes Grade A wheat.

Contract Details

• Weight clearly specified.
• Quality clearly specified.
• Delivery date fixed.

Analysis
The commodity is:

• fungible;
• measurable;
• market available.

Result
✅ Valid salam commodity.

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.”

​

Islamic Contract – Bay’ al-Salam: Price (Ra’s al-Māl) in Salam Contract 
Q1: What is ra’s al-māl
in a salam contract?
Answer
Ra’s al-māl refers to:
the purchase price or capital paid by the buyer in a salam contract.
In salam:

• the buyer pays the price immediately;
• while delivery of the commodities is deferred to a future date.

Q2: Why must the salam price be fully paid immediately?
Answer
The salam price must be:

• clearly determined; and
• fully paid at the contract session.

This rule exists to avoid:
exchange of one deferred countervalue for another deferred countervalue,
which is known as:
bay‘ al-kāli’ bi al-kāli’
(sale of debt for debt).


What Is Bay‘ al-Kāli’ bi al-Kāli’?
Explanation
It occurs when:

• both payment and delivery are deferred.

This creates excessive uncertainty and resembles prohibited debt trading.


Example of Invalid Bay‘ al-Kāli’ bi al-Kāli’
A buyer says:
“I will pay RM50,000 after 6 months for rice to be delivered after 6 months.”
Problem

• payment delayed;
• delivery also delayed.

Both obligations are deferred.
Result
❌ Invalid because it resembles sale of debt for debt.


Q3: Why must the seller receive full payment before leaving the contract session?
Answer
The seller must take possession of the salam capital immediately because:

• salam was permitted to provide immediate liquidity to producers and farmers.

If payment is delayed:

• the purpose of salam is defeated.

Immediate payment also:

• prevents uncertainty;
• distinguishes salam from prohibited debt exchanges.

Q4: Did any jurists allow slight delay in payment?
Answer
Yes.
The Māliki jurists allowed:

• minor delay of a few days,

provided:

• the delay is not stipulated as a contractual condition.

Similarly, AAOIFI allows:

• payment delay of:
  • two or three days at most
    as an exception.

Q5: Can an existing debt be used as salam capital?
Answer
No.
According to AAOIFI SS No. 10 (Para 3/1/4):
an existing debt cannot be recognised as the capital of salam.
This means:

• salam capital must involve actual payment;
• not merely set-off or conversion of existing debt.

Example of Invalid Debt as Salam Capital
A farmer owes trader:

• RM30,000 from previous transaction.

The trader says:
“I will treat that debt as salam payment for future wheat delivery.”
Problem
No actual new payment occurs.
Result
❌ Invalid salam capital according to AAOIFI.


Q6: Why are ribawi items problematic in salam pricing?
Answer
If the salam price itself is:
a ribawi item,
certain exchanges become prohibited to avoid:

• ribā al-faḍl; and
• ribā al-nasī’ah.

What Is Ribā al-Faḍl?
Occurs when:

• ribawi items of same genus are exchanged unequally.

Example:

• 1 tonne wheat exchanged for 1.5 tonnes wheat.

What Is Ribā al-Nasī’ah?
Occurs when:

• one ribawi item is delivered immediately;
• the other is deferred.

This naturally occurs in salam because:

• commodity delivery is deferred.

Example of Invalid Ribawi Salam
A buyer pays:

• wheat today
  for:
• barley delivered later through salam.

Problem
Both:

• wheat;
• barley

are ribawi food commodities.
The exchange creates risk of:

• ribā al-nasī’ah.

Result
❌ Not permissible through salam.


Q7: What are the AAOIFI requirements regarding salam capital?
Answer
According to AAOIFI SS No. 10:
1. Salam Capital Must Be Clearly Known
(Para 3/2/1)
The price must be clearly determined to:

• remove uncertainty;
• avoid disputes.

2. Salam Capital Must Be Paid Immediately
(Para 3/1/3)
Payment should occur:

• at the contract session.

Exception:

• delay of two or three days may be tolerated.

3. Debt Cannot Be Salam Capital
(Para 3/1/4)
Existing debts cannot be converted into salam payment.


Case Study 1: Valid Salam Payment
A trader enters salam contract with rice farmer.
Contract Details

• Commodity: 10,000 kg rice
• Salam price: RM80,000
• Delivery date: 1 December 2028

The trader:

• pays RM80,000 immediately during contract session.

Analysis

• Full payment immediate.
• Delivery deferred.
• Valid salam structure.

Result
✅ Valid salam contract.


Case Study 2: Invalid Deferred Salam Price
A buyer agrees:

• to pay RM100,000 after 4 months
  for:
• palm oil delivered after 6 months.

Analysis
Both:

• payment;
• delivery

are deferred.
This creates:
bay‘ al-kāli’ bi al-kāli’.
Result
❌ Invalid salam contract.


Case Study 3: Invalid Debt Conversion
A supplier owes customer:

• RM50,000.

Customer proposes:
“Use the debt as salam payment for future wheat delivery.”
Analysis

• No actual payment occurs.
• Salam capital not genuinely transferred.

Result
❌ Invalid according to AAOIFI.


Important Principle
Salam is permitted as:
an exception to normal prohibition of selling future goods.
Therefore:

• strict rules apply to reduce uncertainty and ribā.

The most important rule is:
full upfront payment of the salam capital.

​

​Islamic Contract – Bay’ al-Salam: Basic Rules and Conditions of Salam
1. Offer and Acceptance in Salam Contract
Explanation
A salam contract may be concluded using:

• the word salam;
• the word salaf;
• the word sale; or
• any wording that clearly indicates:

a sale of specified commodities for future delivery in exchange for immediate payment.
What is important in Islamic contracts is:

• the meaning and intention of the contracting parties,
  not merely:
• the exact terminology used.

Therefore, any wording that clearly reflects:

• advance payment; and
• deferred delivery of specified goods

may validly establish a salam contract.


Key Elements Reflected in the Contract Wording
The wording must indicate:

1. immediate payment of the price;
2. future delivery of goods;
3. clearly specified commodities.

Example 1: Using the Word “Salam”
A trader says:
“I enter into a salam contract to purchase 5,000 kg of rice for RM40,000 to be delivered after 6 months.”
The farmer accepts.
Analysis

• The word salam is expressly used.
• Future delivery and upfront payment clearly stated.

Result
✅ Valid salam contract.


Example 2: Using the Word “Salaf”
A buyer says:
“I make a salaf agreement with you for delivery of 100 tonnes of wheat after harvest in exchange for RM300,000 paid today.”
Analysis

• The term salaf historically refers to salam.
• Immediate payment and deferred delivery specified.

Result
✅ Valid salam contract.


Example 3: Using Ordinary Sale Wording
An Islamic bank says:
“We purchase 200 tonnes of crude palm oil from you for RM800,000 paid immediately, with delivery after 8 months.”
Analysis
Although the word “salam” is not used:

• the contract clearly indicates:
  • immediate payment;
  • deferred commodity delivery.

Result
✅ Valid salam contract.


Example 4: Invalid Unclear Arrangement
A buyer says:
“I may pay you later if I agree, and you can supply goods whenever available.”
Analysis
The statement lacks:

• certainty of payment;
• certainty of delivery;
• precise contractual obligation.

This creates:

• uncertainty (gharar);
• ambiguity.

Result
❌ Invalid salam contract.


Important Principle
In Islamic commercial law:
contracts are judged by their substance and meaning,
not merely by labels or terminology.
Thus:

• any wording clearly establishing:
  • advance payment;
  • future delivery;
  • specified commodities

may constitute a valid salam contract.


Summary Notes
Salam Contract May Use:
✅ Salam
✅ Salaf
✅ Sale
✅ Any wording clearly indicating deferred commodity delivery for upfront payment.


Essential Meaning That Must Exist
The contract must clearly show:

• full advance payment;
• future delivery;
• specified commodity;
• agreed delivery date.

​Islamic Contract – Bay’ al-Salam: Legality of Salam
Q1: What is the legal basis for the permissibility of salam?
Answer
The legality of the salam contract is established through:

• the Qur’ān;
• the Sunnah; and
• ijmā‘ (consensus of Muslim jurists).

Salam is recognised as a valid exception to the general prohibition of:
selling something that does not yet exist (bay‘ al-ma‘dūm).
This exception was permitted because of:

• commercial necessity;
• public interest; and
• the needs of farmers and producers.

Q2: What is the Qur’ānic basis for salam?
Answer
The permissibility of salam is deduced from the following verse of the Qur’ān:
“You who believe, when you contract a debt for a stated term, put it down in writing…”
(Qur’ān, 2:282)
Ibn ‘Abbās explained that:

• this verse includes salam transactions because salam creates:

a debt obligation involving future delivery of goods.
The verse also emphasises:

• proper documentation;
• specified terms;
• contractual certainty.

These are important elements in salam contracts.


Q3: What evidence from the Sunnah supports salam?
Answer
Ibn ‘Abbās reported that:
when the Prophet Muhammad (SAW) migrated to Madinah,
people were engaging in salam transactions involving fruits for:

• one year;
• two years;
• or three years.

The Prophet (SAW) then said:
“Whoever pays money in advance for something should pay it for a specified measure or specified weight for delivery on a specified date.”
(al-Bukhāri, hadith no. 2240)
This hadith establishes several important conditions of salam:

• full advance payment;
• specified quantity;
• specified quality;
• specified delivery date.

Q4: Why was salam permitted although it involves future goods?
Answer
Normally, Islamic law prohibits:
selling non-existent goods (bay‘ al-ma‘dūm)
because it may lead to:

• uncertainty (gharar);
• disputes;
• injustice.

However, salam was exceptionally permitted because:

• farmers and producers required advance financing;
• they needed working capital before harvest or production.

Salam therefore:

• supports economic activity;
• assists agricultural communities;
• provides Shariah-compliant financing.

Q5: What is the role of ijmā‘ in salam?
Answer
Muslim jurists unanimously accepted:
the permissibility of salam.
This scholarly consensus (ijmā‘) developed because:

• salam was widely practised;
• the Prophet (SAW) approved it;
• society had genuine commercial need for it.

Thus:

• all major schools of Islamic jurisprudence recognise salam as permissible.

Case Study 1: Farmer Salam Financing
A rice farmer requires money before planting season.
A trader enters into salam contract with the farmer.
Contract Details

• Commodity: 20,000 kg of rice
• Salam price: RM100,000
• Payment: fully paid immediately
• Delivery date: 1 December 2028

The farmer uses the money for:

• seeds;
• fertiliser;
• labour costs.

Analysis

• Full payment made upfront.
• Delivery deferred.
• Commodity clearly specified.

This arrangement:

• helps farmer obtain capital;
• complies with salam requirements.

Result
✅ Valid salam contract.


Case Study 2: Palm Oil Producer Financing
An Islamic bank finances a palm oil producer using salam.
Contract Details

• Commodity: 200 tonnes crude palm oil
• Salam price: RM800,000
• Delivery period: 8 months

The bank:

• pays full price immediately.

The producer:

• delivers palm oil after production.

Analysis
The salam contract:

• provides immediate liquidity to producer;
• secures future commodity supply for bank.

Result
✅ Permissible salam arrangement.


Important Principle
Salam is permitted because:

• it fulfils genuine commercial needs;
• it assists producers and farmers;
• it facilitates economic activity.

However:

• strict conditions apply to minimise:
  • uncertainty (gharar);
  • disputes;
  • exploitation.

These conditions include:

• full upfront payment;
• specified quantity;
• specified quality;
• specified delivery date.

Islamic Contract – Difference Between Bay’ al-Salam and Bay’ al-Istisnā‘
Q1: What is the main difference between salam and istisnā‘?
Answer
Although both contracts involve:

• future delivery of goods,

they differ in several important aspects such as:

• nature of asset;
• payment method;
• purpose of contract;
• type of goods involved.

1. Nature of Subject Matter
Salam
Salam involves:
fungible and standardised commodities.
Examples:

• rice;
• wheat;
• sugar;
• palm oil.

The goods:

• are usually generic;
• measurable by weight or quantity.

Istisnā‘
Istisnā‘ involves:
manufactured or constructed assets.
Examples:

• houses;
• aircraft;
• ships;
• machinery.

The assets:

• are produced or constructed according to specifications.

Example
Salam
Purchase of:

• 10 tonnes of wheat for future delivery.

Istisnā‘
Construction of:

• customised factory machinery.

2. Payment Method
Salam
The purchase price:
must be fully paid upfront at the contract session.
This is a mandatory condition.


Istisnā‘
Payment is flexible.
It may be:

• upfront;
• progressive;
• deferred;
• upon completion.

Example
Salam
Buyer pays:

• RM50,000 immediately
  for future rice delivery.

Istisnā‘
Customer pays:

• progressively during house construction.

3. Existence of Asset
Salam
Goods:

• usually exist naturally in future,
  such as:
• future crops or commodities.

Istisnā‘
Asset:

• must be manufactured or constructed.

Human work and production are essential.


Example
Salam
Future harvest of dates.


Istisnā‘
Manufacturing of aircraft.


4. Purpose of Contract
Salam
Mainly used to:

• finance farmers;
• support commodity producers;
• provide working capital.

Istisnā‘
Mainly used for:

• construction financing;
• manufacturing projects;
• infrastructure development.

Example
Salam
Advance financing for rice farmer.


Istisnā‘
Financing construction of highway.


5. Possibility of Contract Cancellation
Salam
Generally:

• cannot be unilaterally cancelled after conclusion because price fully prepaid.

Istisnā‘
Some jurists allow:

• greater flexibility before manufacturing starts.

6. Type of Goods
Salam
Requires:
fungible goods.
Meaning:

• interchangeable;
• standardised.

Istisnā‘
Can involve:
unique customised manufactured assets.


Example
Salam
Crude palm oil.


Istisnā‘
Custom-designed luxury yacht.


Case Study 1: Salam Contract
A farmer requires financing before harvest.
Contract Details

• Commodity: 15,000 kg rice
• Salam price: RM90,000
• Payment: fully prepaid
• Delivery: after 8 months

Analysis

• Commodity-based contract.
• Full advance payment required.

Result
✅ Salam.


Case Study 2: Istisnā‘ Contract
A company orders customised factory equipment.
Contract Details

• Equipment value: RM5,000,000
• Manufacturing period: 18 months
• Payment:
  • 30% upfront;
  • 40% during production;
  • 30% upon delivery.

Analysis

• Asset manufactured according to specifications.
• Flexible payment allowed.

Result
✅ Istisnā‘.


Simplified Comparison Between Salam and Istisnā‘
Salam
Subject Matter
Fungible commodities.
Payment
Full upfront payment compulsory.
Nature
Forward commodity sale.
Examples
Rice, wheat, sugar.
Main Purpose
Agricultural and commodity financing.


Istisnā‘
Subject Matter
Manufactured or constructed assets.
Payment
Flexible payment arrangements.
Nature
Manufacturing/construction contract.
Examples
Buildings, aircraft, machinery.
Main Purpose
Construction and project financing.


Easy Way to Remember
Salam
➡️ “Pay now, receive standard commodity later.”


Istisnā‘
➡️ “Manufacture or construct customised asset for future delivery.”

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