There are three basic conditions for the validity of sale contract in Shariah. We have discussed them in some details in the previous articles. These three conditions are as follows:
1. The commodity is must be in existence. If the commodity doesn’t existence at the time of sale, it cannot be sold.
2. The seller must have the ownership of the commodity. So, if someone doesn’t own a commodity, he cannot sell it to anyone else.
3. The seller should have the possession of the commodity either physically or constructively. Because, the mere ownership is not enough to sell something. It’s necessary for seller to take the delivery of the commodity either himself or through an agent. Otherwise, he isn’t allowed to sell something which is not in his possession.
Shariah has imposed these conditions for the valid sale to avoid form any ambiguity (gharar) and potential dispute among the contracting parties. However, there are two exceptions in Shariah from these basic conditions, these are bay al-salam (forward sale) and bay al-istisna (manufacturing sale). In both of these sales, the subject matter isn’t available at the time of contract and its delivery is deferred to the future. There are certain rules and conditions given by Shariah to govern these exceptional sales. The modern Islamic financial institutions and Islamic banks have developed certain products based on salam and istisna. Therefore, it’s important to know the concepts and basic rules of these sales in Shariah and how it works in modern Islamic financial system. In the coming series, we will learn these contracts with necessary details.
Definition of bay al-salam
Salam literally means to giving, payment in advance and leaving. Technically, bay al-salam refers to a type of sale where the price is paid in advance at the time contract for specified goods which will be delivered in future. In other words, salam is a type of sale where the seller undertakes the supply of some specific goods to the buyer at a future date in exchange of an advance price which is fully paid on the spot. The price is known as the salam capital and the deferred commodity is known as muslam fihi which is the subject matter of the salam contract. The seller is known as muslam ilaihi whereas the buyer is known as rab al-salam.
Why salam is allowed?
The contract of salam is equally beneficial for both buyer and seller. Because, the seller gets the price in advance which he can use to produce goods and meet his cash needs. Likewise, the buyer gets the commodity in cheap price. Because normally, the price in salam is lower and cheaper than price is given on spot sales. The contract of salam was allowed by the Prophet Muhammad (peace be upon him) when he migrated to Madinah. The basic purpose of this sale was to meet the needs of small farmers. Because, they couldn’t take the interest-based loans due to prohibition of Shariah. But they had a need of money to grow their crops and to feed their family until the time of harvest. So, they were allowed to sell their agriculture products in exchange for payment in advance. Likewise, the Arab traders used to do export and import business. They needed money to run this type of business. The door of usurious loans was closed. So, the contract of salam was allowed from them to sell their goods in advance and meet their liquidity needs for their business.
In this article, a brief introduction of bay al-salam is presented. In the coming article, we shall look at the basic rules and modern application of salam.