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SALAM CONTRACT

It’s a forward contract where the bank pays for the asset or commodity which is still not produced; the clients agree to return on an agreed date with already specified quality and quantity of goods. Buyback is strictly prohibited by Shariah because the commodity that is owned by the bank in Salam contract can’t sell back to the same customer. In that case, the parties can enter into another agreement called Parallel Salam, where goods are sold to the third party. Important to mention here that parallel salam is only possible with the third party only.

SALAM CONTRACT DETAILS

Seller undertakes to supply some specific goods to the buyer at a future date in exchange for advance price fully paid in advance. Salam may be considered as a kind of debt, because the object of the Salam contract is the liability of the seller, up to the agreed future date, to deliver the object for which advanced payment of the price has already been made. For a salam contract to be completely sharia complaint, the purchased commodity must be in existence, the seller should have acquired the ownership of the commodity and commodity must be in a physical possession of the seller.

SALAM PROCESS

01

BANK AS BUYER

The bank will act as a buyer and will purchase the goods on deferred payment. The time of delivery and specification of the goods will already be defined in the agreement.
02

DELIVERING GOODS AS PROMOSED

The customer will deliver the goods on agreed terms.
03

SALE OF GOODS

  The bank sells the goods through Parallel salam, appointing the customer as their agent to sell the goods to the third party or receive delivery of the goods and sell in the market. .

HOW SALAM CONTRACT CAN HELP YOU

KEY BENEFITS OF A SALAM CONTRACT

GOOD FOR AGROTRADERS

This mode is more suitable for farmers and export traders where the asset is still not produced.

EASY INSTALLMENTS

Salam can be paid back in installments or as per agreed terms of the contract.

SUPPORT EXPORT FINANCE

Through Parallel Salam manufactured goods can be used for export purposes which can be sold to the third party.

Expert Advice

The above information provides beneficial knowledge about Islamic Banking Economics and Trade Finance. The content is provided for information purposes only. For more details, please reach out to one of our Expert Today

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