Salam Contract in Islamic Finance

UAE Laws and Islamic Finance

Rome

Thoughts from Iraj Toutounchian’s Islamic Money & Banking, Integrating Money in Capital Theory

This contract (also known as ‘advance payment sale’) is an advance payment for deferred delivery.  In this case, the bank pays the agreed amount of the financing to the client in advance, and the goods are delivered to the bank at a specified future date and place.’  (Khan 2000: 25)  To avoid any misunderstanding, it should also be added that the goods in question have to be based on a client’s demand.  Of such contracts, Shirazi says the following:

When, during the process of production, the producer feels a financial constraint on part of his or her working capital needs … forward deals are signed only to help the producer by supplying part of the working capital needs.  Banks [can be] authorized to sign such deals only at the request of a producer.  (Shirazi 1988: 201)

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