• Asset delivery is differed but payment is made up front, i.e. the seller undertakes to supply a specific asset at a future date in exchange for full on the spot payment (in advance) at the start of the contract.
• The object of the sale (asset) becomes a debt at the point of contract, thus the payment cannot be delayed.
• The capital of Salam can be money, services or rights (usufruct).
• The object of the exchange must be fungible i.e. can be specified according to weight, size, volume, colour, quantity, quality or grade. It can also be a well-defined service. The object of exchange cannot be paper money as it is not a commodity/asset.
• Salam cannot be valid for assets with changing values from different assessments. Values must be fixed.
• The place and time of the delivery must be specified. Delivery in instalments is allowed, if agreed by all parties. Early delivery is allowed if all parties agreed and no parties are disadvantaged.
• Salam must be concluded with actual physical delivery.
• The seller of the asset need not be the manufacturer or producer of the asset. The seller may be an agent to deliver the asset.
• Salam is conclusive and binding upon the full payment for the sale at the start of the contract. The terms can only be reviewed and changed with consent of both parties.
• Before delivery of the asset, the risks on the asset lie with the seller and upon delivery, the risks are transferred to the buyer.
• Upon delivery of the stipulated asset, the buyer is obligated to take possession of the asset if the asset delivered is in accordance with the agreed specifications. For such delivery, the seller’s liability to the contract is absolved.
• If the assets to be delivered consist of different assets at different values or description, the assets must be detailed as far as possible to avoid dispute.
Bai Salam
Bai Salam is a form of forward contract in which the price for an asset is paid upfront at the time of the contract for an asset or commodity to be delivered later. It a sale where the Asset/Commodity is delivered on a deferred basis in exchange for the price being paid immediately. It differs from the idea of Murabahah where the price is paid on deferred basis but asset is delivered immediately.
Because the Salam contract deals with the delivery of an asset which is not in existence, the following Shariah highlights must be strictly adhered to in order to ensure that the right of all parties are protected.
The buyer can enter into a similar contract with a third party to sell the goods in a so called Parallel Salam. This parallel contract is independent from the first Salam contract but it is always used along to give the bank assurance that the goods purchased will be sold instantly upon delivery by the customer.
