Wednesday word: SalamMay 2, 2012
Salam is a type of forward contract in sharia finance that allows a buyer to pay now for goods to be delivered later. In general, Islam bans the purchase of any object that the seller does not currently possess, and salam is presented by sharia finance advocates as a narrow, clearly defined exception to the general rule.
Kettell defines salam as “a sale whereby the seller undertakes to supply some specific goods to the buyer at a future date, in exchange for an advanced price fully paid at spot.”*
Kettell also says that the exact price, quality, quantity, and delivery date should be included in a salam contract, and references an unspecified passage from the Hadith that says “He who sells on Salam must sell a specific volume and a weight to a specific due date.”
Yet selling on salam appears to contradict the Islamic reliance on possession before a valid sale can be made.
The fact is that “business” by any normal measure is impractical without a forward contract. The business elites of the ummah have realized this and have simply determined that in this instance, the exception is the rule.
*Kettell, Brian B., Introduction to Islamic Banking and Finance (Chippenham: John Wiley and Sons, 2011).