Bay Salam

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A sale contract with full prepayment today, but delivery in the future, e.g. one month later.


The general rule in Islamic Law does not permit to sell what you do not own. One of the exceptions of the general rule is the Salam (or sometimes Salaf) contract which allows to sell at a given future date a well specified commodity by quantiy and quality against full payment at spot. There are number of conditions regarding the goods, to replace in a sense the inspection of the good not avalaible today. If a good is heterogen than it might not apply to such a forward sale. The contract is binding and if the seller fails to have the goods for any reason he is obliged to buy it in the market.

Parallel Salam

Salam is a genuine financing method used for example to finance farmers in the early days of Islam. As such it could be used for financing clients by any financial institution today. The key concern of a bank is that they need a third party to sell the good upon delivery otherwise they would hold a stock of goods. The ultimate buyer therefore could give an unilateral binding promise ([[Waad]) to buy the underlying specified good in the Salam contract with the seller to the bank or enters into a second Salam contract, a so-called parallel Salam. As delivery to the second party is independent on the fulfillment of terms of the first party, a risk arised for the financer.