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

    • 27th May @camille paldi
    • Stefano Padovani https://t.co/DRZfU6zENx
    • 27th May @camille paldi
    • The Business Daily https://t.co/vak0VHldoS
    • 27th May @camille paldi
    • The Business Daily by FAAIF is out! https://t.co/L75uGnuhlT
    • 27th May @camille paldi
    • The Inter-faith Daily https://t.co/mUOqDDUKS1
    • 27th May @camille paldi
    • The Inter-faith Daily is out! https://t.co/MvvV6vruWS
    • 27th May @camille paldi
    • https://t.co/QsklXuKWpt
    • 27th May @camille paldi
    • https://t.co/mhYOZoi66T
    • 27th May @camille paldi
    • The Islamic Finance Daily https://t.co/mMBT4MHO8T
    • 27th May @camille paldi
    • The Islamic Finance Daily is out! https://t.co/aWp893XzcU Stories via @Ozymandias1993 @Hadia_Hashmi
    • 27th May @camille paldi
    • The Halal Daily https://t.co/ap7TFSzGax
    • 27th May @camille paldi
    • The Halal Daily is out! https://t.co/xQ4Zbfx9xw Stories via @Jeff_levine99 @MBI_FG @zawajbox
    • 26th May @camille paldi
    • https://t.co/VdpMTPsXvz
    • 26th May @camille paldi
    • The Business Daily https://t.co/vak0VHldoS
    • 26th May @camille paldi
    • The Business Daily by FAAIF is out! https://t.co/GUJGIV0Wis
    • 26th May @camille paldi
    • The Inter-faith Daily https://t.co/YHeyrqdGi5
    • 26th May @camille paldi
    • The Inter-faith Daily is out! https://t.co/kk9Ps4vj27
    • 26th May @camille paldi
    • The Islamic Finance Daily https://t.co/5auwIrBA3w
    • 26th May @camille paldi
    • The Islamic Finance Daily is out! https://t.co/ax02Rzit9z Stories via @yusryyusoff @Redbrand711 @IRTI_IDB
    • 26th May @camille paldi
    • The Halal Daily https://t.co/hJg809Lo2T
    • 26th May @camille paldi
    • The Halal Daily is out! https://t.co/ANgeP5vf1W Stories via @Chef_FabianLana @DTNMalaysia @lucidite_92

Articles

India and Islamic Finance Update

India and Islamic Finance Update

India and Islamic Finance Update   

By: *Camille Paldi

Posted on 9th April 2016 by Camille Paldi

Review of FAAIF Islamic Finance for Lawyers One or Two Day Program

Review of FAAIF Islamic Finance for Lawyers One or Two Day Program

See what Camille Paldi

Dubai World Analysis

Dubai World Analysis



Nakheel is a member of Dubai World and one of the UAE’s largest property developers. Dubai World is one of the largest holding companies in the w...

Posted on 2nd April 2016 by Camille Paldi

Tabreed Sukuk Case-Study

 

The Tabreed Sukuk

Camille Paldi

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 © 2016

* Prices are converted at USD$0.2723 per AED 1