salam

salam is an agreement to buy a certain type of commodity at a predetermined price, to be delivered in a certain quantity and quality that will not be available in a certain future. In salam, the payment – in cash – is made at the time of the contract, but the delivery of the contracted asset is postponed to a date specified in the contract. This type of contract is called salam because the principal is collected in advance. The advance price is called re’su’l-mâl, the party who pays this price is called rabb al-salam, the return price is called muslemün fîh, and the party who borrows this price is called muslemün ileyh. The appropriateness of salam in Islamic finance is established by the main sources of Islam – the Qur’an, Sunnah, and Ijma. It is considered by Islamic jurists as an Islamic alternative to forward contracts. However, the requirement for the buyer in a salam sale to pay the full amount at the time of the contract is the most fundamental aspect that distinguishes this financial instrument from a forward contract. In the early days of Islam, salam was limited to a select number of commodities, but later Islamic jurists expanded its scope to include any commodity whose quality and quantity could be precisely determined. Despite this, salam is not popular in the Islamic financial markets. The reason is that, unlike forward contracts, salam requires full payment at the time of the contract.