Salam

Salam in the definition jurists a sale of a commodity whose delivery will be in a future date for a cash price , which means, it is a financial transaction in which price is advanced in cash to the seller who abides the delivery of commodity of determined specification on a definite due date. The deferred is the commodity sold and described (on liability) and the immediate is the price.

The Salam sale serves the interests of both parties:

The Seller: gets in the advance the money he wants in exchange of his obligation to deliver the commodity later. He benefits from the Salam sale by covering his financialneeds whether these are personal expenses, for productive activity.

The purchaser: The bank purchases the commodity it is planning to trade in, in the time it decides since the commodity becomes the liability of the seller who is required to meet his obligation. The bank also benefits from the cheap prices for usually Salam sale is cheaper than a cash sale. This way the bank is secured against the price fluctuations.

The bank: The bank can sell on parallel Salam commodity in the same kind as it has previously purchased on first Salam without making one contract depend on the other The bank also has the option of waiting to receive the commodity and then sell it for cash or deferred payment.

THE PRACTICAL STEPS OF THE SALAM SALE FOLLOWED BY CASH SALE OR SALE ON CREDIT

1. The Salam Sale contract:

The bank: pays the price in the contract meeting so that the seller makes use of it and cover his financial needs

The Seller: abides the delivery of the commodity on the specific due date.

2. Delivery and receipt of the commodity on the specific due date

The Bank: There are several options at the disposal of the bank to choose from.

• The bank receives the commodity on due date, and sells it either for cash or on credit.
• The bank can authorize the seller to sell the commodity on its behalf against fees (or without fees).
• Direct the seller to deliver the commodity to a third party (the buyer) according to a previous promise of purchase.

3. Sale Contract

• The bank agrees to sell the commodity for cash or a deferred  price higher than the Salam purchase price.

The buyer agrees to purchase and to pay the price according to the agreement.

AREAS OF APPLICATION 

The Salam sale has the flexibility to cover the needs of various sectors of people such as farmers, industrialists, contractors or traders. It can be used to meet the capital requirements as well as to meet cost of operations.

Salam sale is suitable to finance agricultural operations, where the bank can transact with farmers who are expected to have commodity in plenty during harvest either from their own crops or crops of others, which they can buy and deliver in case their crops fail. Thus the bank renders great services to the farmers in their way to achieve their production targets.

Salam sale is also used to finance the commercial and industrial activities, especially in phases prior to production and export of commodities and that is by purchasing it on Salam and marketing them for lucrative prices.

Salam sale is also used to finance the commercial and industrial activities, especially in phases prior to production and export of commodities and that is by purchasing it on Salam and marketing them for lucrative prices.

The Salam sale is applied by the bank in financing craftsmen and small producers by supplying them with the inputs of production as a Salam capital in exchange of some for their commodities to remarkets.

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