slideshow

Salam Contract in Islamic Finance

Posted on 12th August 2012 by Camille Paldi,

Rome

Thoughts from Iraj Toutounchian’s Islamic Money & Banking, Integrating Money in Capital Theory

This contract (also known as ‘advance payment sale’) is an advance payment for deferred delivery.  In this case, the bank pays the agreed amount of the financing to the client in advance, and the goods are delivered to the bank at a specified future date and place.’  (Khan 2000: 25)  To avoid any misunderstanding, it should also be added that the goods in question have to be based on a client’s demand.  Of such contracts, Shirazi says the following:

When, during the process of production, the producer feels a financial constraint on part of his or her working capital needs … forward deals are signed only to help the producer by supplying part of the working capital needs.  Banks [can be] authorized to sign such deals only at the request of a producer.  (Shirazi 1988: 201)

It must be added, though, that the produced goods could have been used either in another process for further value-adding or, if they are needed in society, the request could have been made by a third party.  The Islamic bank does not receive the goods, rather, it acts as a facilitating agent.  A producer’s need for working capital does not alone justify payment from the bank.  One of the uses of the Qard-ul Hassan contract mentioned earlier is to pay the working capital of those producers, which have already been financed by the Islamic bank and thus enjoy a good reputation.  Such an instrument can be used as a trilateral contract involving the bank, the client, and the client’s supplier or producer.

As to the price of the commodity in question, a Salam purchase is usually cheaper than a spot purchase (Khan 2000:25).  There is no need for an Islamic bank to enter into any conceivably profitable transaction, and to ensure that it is entirely Shari’ah compliant, the price of the forward purchase should never exceed the cash price of similar products at the time the goods are delivered.

Khan sees Salam as ‘an exception to the general rule that the seller must possess the goods he is selling.’


Posted on 12th August 2012 by Camille Paldi


Comment on this post







Twitter

    • 3rd May @camille paldi
    • Are Sukuk "Islamic Bonds"? - http://t.co/7xp7K7ZP8l #GoogleAlerts
    • 2nd May @camille paldi
    • Linklaters and Clifford Chance advise on $1.5bn Malaysia Islamic bond issue - http://t.co/bwA612Ulth #GoogleAlerts
    • 1st May @camille paldi
    • Bank Negara Malaysia Is Cool - http://t.co/irGFKo1jnQ #GoogleAlerts
    • 1st May @camille paldi
    • Islamic loan books shift towards profit-sharing in Indonesia, Pakistan - http://t.co/2q4TAD1ph2 #GoogleAlerts
    • 1st May @camille paldi
    • The Occidental Institute for Islamic Banking and Finance (OIIBF) at Oxford University Concludes .. - http://t.co/GdTPx0MnPT #GoogleAlerts
    • 1st May @camille paldi
    • UK Industrial Estate secures Sharia Compliant Investment of £17.92 million - http://t.co/NBHCW9DC3x #GoogleAlerts
    • 30th April @camille paldi
    • Islamic finance body IFSB launches industry indicators - http://t.co/sRU6FhKPSU #GoogleAlerts
    • 29th April @camille paldi
    • CCTV Report: Islamic Finance Developments in Turkey - http://t.co/7ox6ONKvgP #GoogleAlerts
    • 27th April @camille paldi
    • Islamic Finance in Malta - http://t.co/l0jiKQX1QJ #GoogleAlerts
    • 25th April @camille paldi
    • Noor plans repeat sales after sukuk debut - http://t.co/eGzlzjwDdn #GoogleAlerts
    • 25th April @camille paldi
    • Turk delegation visits LCCI - http://t.co/tJST9v4JLz #GoogleAlerts
    • 25th April @camille paldi
    • Malaysian Innovation in Islamic Pensions - http://t.co/SQhb9AVMgo #GoogleAlerts
    • 25th April @camille paldi
    • Lloyd's of London 'in talks with regulators' - http://t.co/miHU3Nnwgh #GoogleAlerts
    • 25th April @camille paldi
    • Islamic Finance is emerging as an alternative source of financial sustainability in Europe - http://t.co/4oRcUhFFfC #GoogleAlerts
    • 25th April @camille paldi
    • Ivory Coast Signs $490 Million Islamic Bonds Deal - http://t.co/EIX3kgk6Ps #GoogleAlerts
    • 25th April @camille paldi
    • First Islamic bank in Germany to open in July - http://t.co/3PWvrPO5AQ #GoogleAlerts
    • 24th April @camille paldi
    • Islamic Finance Gateway Daily Briefing - http://t.co/Zh6sV51gY8 #GoogleAlerts
    • 24th April @camille paldi
    • RAM Ratings releases credit FAQs on Malaysia's first SRI Sukuk - http://t.co/5Oz0M5bRej #GoogleAlerts
    • 24th April @camille paldi
    • Russia seeks Malaysian expertise in Islamic Finance - http://t.co/ZhnYrXP6d2 #GoogleAlerts
    • 24th April @camille paldi
    • EPF to offer Islamic investment option by 2017, says Najib - http://t.co/U04SvMkDUI #GoogleAlerts

Articles

FAAIF to Produce Investor Visa Forum in Dubai, UAE

FAAIF to Produce Investor Visa Forum in Dubai, UAE

The Investor Visa Forum will take place in Dubai, UAE at the Novotel Hotel Deira City Centre on October 17-18, 2015.

 

FAAIF CEO, Camille Paldi, recognizing the high demand for investor visa and citizenship through investment services in Dubai and the UAE plans to...

Posted on 21st April 2015 by Camille Silla Paldi

FAAIF and AFRIEF to Produce Africa Islamic Economic and Investment Forum

FAAIF and AFRIEF to Produce Africa Islamic Economic and Investment Forum

April 20, 2015 - Dubai, UAE - Baba Yunus, CEO of AFRIEF and Camille Paldi, CEO of FAAIF announce the Africa Islamic Economic and Investment Forum "AFIIEF" to be held in Dubai, UAE on March 14-15, 2016 at the Dusi...

Posted on 20th April 2015 by Camille Silla Paldi

FAAIF and Al Huda CIBE to Conduct Joint lslamic Finance Training Event in Milan, Italy

FAAIF and Al Huda CIBE to Conduct Joint lslamic Finance Training Event in Milan, Italy

The time is now for Islamic finance and Europe.

 
Camille Silla Paldi

The Rise and Rise of Islamic Finance in the United Kingdom

The Rise and Rise of Islamic Finance in the United Kingdom

 



Matthew Pendrey

Video

Find all our videos here, and also a link to our YouTube video channel so you can view our 'video of the week'

Submit

We would like you to get involved with our site. So if you want to submit Articles, Videos, Events and Call for Papers, please click the button below:

Submit

Valid XHTML 1.1 |  Valid CSS |  Web Design in Durham and Newcastle |  Copyright © 2015

* Prices are converted at USD$0.2723 per AED 1