This mode of financing can be used by the modern banks and financial institutions especially to finance the agricultural sector.In salam, the seller undertakes to supply specific goods to the buyer at a future date in exchange of an advanced price fully paid at spot. The price is in cash form but the supply of purchased goods in deffered.
For what purpose salam is used?
To meet the need of small famers who need money to grow their crops and to feed their family up to the time of harvest. When Allah declared Riba haram, the farmers could not take usurious loans. Therefore, Holy Prophet allowed them to sell theri agricultural products in advance.
Condition of salam:
The following conditions would be present in salam transactions, these are given below one by one,
1- It is necessary for the validity of salam that the buyers pays the price in full to the seller at the time of effecting the sale. In the absence of full payment, it will be tantamount to sale of a debt against debt, which is expressly prihibited by the Holy prophet. More over the basic wisdom for allowing salam is to fulfill the "instant needs" of the seller. If its not paid in full, the basic purpose will not be achieved.
2- Only those goods can be sold through a salam contract in which the quantaty and quality can be exactly specified e.g. precious stones can not be sold on the basis of salam because each stone differ in quality, size, weight and their exact specifications is not possible.
3- Salam can not be effected on a particular commodity or on a product of a particular field or farm e.g. supply of wheat of a particular field or the fruit of a particular tree since there is a possibility that the crop is destroyed before delivery and given such possibility, the delivery remains uncertain.
4- All details in respect to quality of goods sold must be expressly specified leaving no ambiguity, which may lead to a dispute later on.
5- It is necessary that the quantity of the commodity is agreed upon in absolute terms.It should be measured or weighted in its usual measure only, measuring what is normally weighted cannot be quantified and vice versa.
6- The exact date and place of delivery must be specified in the contract.
7- Salam can not be effected in respect of things, which must be delivered at spot.
8- The time of delivery should be at least fifteen days or one month from the date of agreement. Price in Salam is genrally lower than the price in spot safe. The period should be long enough to affect prices. But Hanafi Fiqh did not specify and minimum peiod for the validity of salam. Ith is all right to have an earlier date of delivery if the seller consents to it.
9- A security in the form of a guarantee, mortgage or hypothecation may be required for a salam in under to ensure that the seller delivers.
10- The seller at the time of delivery delivers commodities and not money to the buyer who would have to establish a special cell for dealing in commodities.