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Shariaa' Financing

Al Salam

Definition: Al Salam in the definition of the jurists, is a sale of a commodity whose delivery will be in a future date for a cash price, which means, it is a financial transaction in which price is advanced in cash to the seller who abides the delivery of commodity of determined specification on a definite due date. The deferred is the commodity sold and described (on liability) and the immediate is the price. Al Salam sale serves the interests of both parties: The Seller: The seller gets in advance the money he wants in exchange of his obligation to deliver the commodity later. He benefits from the Al Salam sale by covering his financial needs whether they are personal expenses, family expenses or expenses for productive activity. The Purchaser: Here it is the financing bank. The bank gets the commodity it is planning to trade on in the time it decides. Because the commodity becomes the liability of the seller who meets his obligation. The bank will also benefit from the cheap prices for usually Al Salam sale is cheaper than a cash sale. This way the bank will be secured against the fluctuations of prices. The bank can sell on parallel Al Salam commodity in the same kind as it has previously purchased on first Al Salam without making one contract depend on the other. The bank also has the option of waiting to receive the commodity and then sell it for cash or deferred payment. Al Salam is a kind of debt because the subject of the Al Salam contract is the liability of the seller up to the due date so its allowance is subsumed in the above quoted holy verse. The Prophet (PBUH) said: "He who sells on Al Salam must sell a specific volume and a specific weight to a specific due date". There is consensus among Muslims on the permissibility of Al Salam due to the need for it and because the commodity in the contract is a recompense for the price paid in advance therefore the commodity is similar to the price in the sale on credit so it is considered to be an affirmed liability

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