Salam is to purchase an item with a cash payment (immediate) in return for a deferred delivery of the purchased item. Simply, it is a ‘pay now and get later’ transaction. In Salam, the seller undertakes to supply specific goods to the buyer at a future date in exchange of an advanced price fully paid at spot. The price is in cash but the supply of purchased goods is deferred.
However, bear in mind that Salam is specific for that transaction in which money is paid for a nonexistent item. The money given is then utilised to produce the product.
Hence, Salam is different to a transaction in which one pays now and receives an existing product at a later date.
The people involved in a Salam transaction:
- Consumer – Rabbul-mal
- Retailer-muslam ilayh
- Capital (cash paid) – Ra’sul-mal
- Product – muslam fih
Purpose of use:
To meet the need of low profile farmers who need money to grow their crops and to feed their family up to the time of harvest. When Allah declared interest as impermissible, the farmers could not take usurious loans. Therefore, the Prophet (Allah bless him and grant him peace) allowed them to sell their agricultural products in advance.
For example, Irfan owns a small plantation behind his house and is interested in taking up farming as a profession. An absolute beginner, he lacks the material and capital to initiate a business. He approaches a few businessmen and presents his business and asks them to enter into a Salam contract with him. They readily accept, pay the amount mutually agreed upon, and order crops from Irfan. Irfan takes these funds and buys the necessary equipment with a portion of the funds. After the specified time, Irfan delivers the crops to the businessmen.
Salam is beneficial to the seller because he received the price in advance and it was beneficial to the buyer also because normally the price in Salam is lower than the price in spot sales.
The permissibility of Salam is an exception to the general rule that prohibits forward sale and therefore it is subject to strict conditions.
The conditions for Salam:
- Salam can only be conducted in items that can be weighed, measured or in items of similar units that are sold by units. Therefore, Salam will be permissible in items such as wheat, barley, dates etc. Salam will not be permissible in animals.
- The ordered item must be specified in every possible way:
a) The purchased item must be specified.
b) The quality must be specified.
c) The classification of the item must be specified
d) The amount must be specified and
e) The time of the delivery must be specified.
An example of this will be that the Muslam Ilayh stipulates that he will deliver 100 kg of Grade-A Indonesian coffee beans in two months in exchange of £500.