What is parallel salam in banking?
In an arrangement of parallel salam, the bank enters into two different contracts. In one of them, the bank is the buyer and in the second one the bank is the seller. Each one of these contracts must be independent of the other.
Is parallel salam allowed in Shariah?
Parallel salam is allowed with a third party only. The seller in the first contract cannot be made purchaser in the parallel contract of salam, because it will be a buy-back contract, which is not permissible in Shariah.
Who is the common party in both salam contract and parallel contract?
The bank is the common party in both contracts. For Salam contract, the bank acts as the buyer, purchasing assets or commodities from suppliers. For the Parallel Salam contract, the bank acts as the seller to the client. The quantity, quality, and specifications of the assets or commodities are the same in both contracts.
What are the rules for the validity of parallel salam?
Since the modern Islamic Banks and Financial Institutions are using the instrument of parallel salam, some rules for the validity of this arrangement are necessary to observe: 1. In an arrangement of parallel salam, the bank enters into two different contracts. In one of them, the bank is the buyer and in the second one the bank is the seller.
What is parallel salam?
Can a parallel contract be tied up?
Can a third party buy salam?
Can A contract a parallel salam with C?
What is parallel Bai Salam?
Parallel salam is based on two independent salam contracts whereby the financier will be both the seller and the buyer in this arrangement.
What is Salam transaction?
In a bai al salam transaction, a lender (Al-muslam) buys an asset from a party seeking financing (the seller or Al-muslam Ileihi), pays the purchase price of the asset in advance and agrees to take delivery of the asset at a later date.
How an IFI would benefit from a parallel Salam contract?
The sale will probably be at a discount so that the IFI can make a profit. In turn, the IFI would probably sell the contract to another buyer for immediate cash and profit, in a parallel Salam arrangement. Salam contracts are prohibited for commodities such as gold, silver and other money-type assets.
What is difference between Salam and istisna?
(i) The subject of istisna is always a thing which needs manufacturing, while salam can be effected on anything, no matter whether it needs manufacturing or not. (ii) It is necessary for salam that the price is paid in full in advance, while it is not necessary in istisna.
What is Salam used for?
Salam (Arabic: سلام, salām), sometimes spelled salaam, is an Arabic word that literally means "peace", but is also used as a general greeting, above all in Arabian countries and by the Muslim countries around the world in general.
How does a salam contract work?
It is a contract for delivery of future goods with pre-payment. The purchaser pays the seller in cash and fixes a certain time for the delivery of the goods. For example, in exchange for RM1000 to be paid immediately 500 kg of rice would be supplied after it is harvested.
What is parallel contract?
In parallel contract, one party enters into a series of contracts with many similarly situated individuals on background terms that are presumptively identical. Parallel contracts depart from the classical model of contract in two fundamental ways.
What are the types of Salam?
"As-Salaam-Alaikum" and "Wa-Alaikum-Salaam"
What are the two contracts in Islamic banking?
Essentially there are two kinds of Islamic Financial Contracts i.e. Commutative and Non-Commutative.
What is istisna in Islam?
Related Content. An Islamic finance technique used to finance the construction or manufacture of assets on terms compliant with Sharia. In an istisna'a transaction, a lender agrees to buy an asset to be delivered once construction or manufacturing of that asset is complete.
What is istisna example?
Istisna is widely used by Islamic banks and financial institutions to finance the construction of real estate such as buildings, warehouses, showrooms, shopping malls, residential towers and villas, as well as manufacturing activities involved in the construction of like aircrafts, ships, machines and equipment, etc.
How many types of riba are there in Islam?
twoThere are two principal forms of riba. Most prevalent is the interest or other increase on a loan of cash, which is known as riba an-nasiya. Most Islamic jurists hold there is another type of riba, which is the simultaneous exchange of unequal quantities or qualities of a given commodity. This is known riba al-fadl.
What is Salam banking?
Salam is a sale whereby the seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advanced price fully paid at spot in cash, but the supply of the purchased goods is deferred.
Who is Salam sale?
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.
What are the features of a valid Salam contract?
It should be measured or weighed in its usual measure only meaning what is normally weighed cannot be quantified and vice versa. The exact date and place of delivery must be specified in the contract. Salam cannot be effected in respect of things, which must be delivered at spot.
Why is Salam contract an exceptional sale?
In general under Shariah law, no sale is lawful unless the goods being sold are in existence at the time of the agreement. Salam sale is an exception found in the hadith of the prophet of Islam Muhammad (collections of his sayings and teachings) provided the goods are defined and the date of delivery is fixed.
Application of Bay Al-Salam in Islamic Financial Institutions
In the previous article, we have discussed the basic rules of bay al-salam.Today, we are going to learn how the concept of salam is used in modern Islamic financial institutions. The salam contract is used by Islamic banks for different purposes especially to finance agriculture sector. It is most effective financing tools to provide microfinance services to small and needy farmers.
Salam
Selling the goods purchased in a Salam contract prior to taking delivery is not generally allowed in Shari´ah. Instead, it is allowed for the Islamic bank to make parallel Salam contracts for the same goods to be delivered even at the date and time of delivery of the original Salam.
What is parallel salam?
1. In an arrangement of parallel salam, the bank enters into two different contracts. In one of them, the bank is the buyer and in the second one the bank is the seller. Each one of these contracts must be independent of the other. They cannot be tied up in a manner that the rights and obligations of one contract are dependant on ...
Can a parallel contract be tied up?
They cannot be tied up in a manner that the rights and obligations of one contract are dependant on the rights and obligations of the parallel contract. Each contract should have its own force and its performance should not be contingent on the other.
Can a third party buy salam?
Parallel salam is allowed with a third party only . The seller in the first contract cannot be made purchaser in the parallel contract of salam, because it will be a buy-back contract, which is not permissible in Shariah.
Can A contract a parallel salam with C?
A cannot contract the parallel salam with C. However, if C is not wholly owned by B, A can contract parallel salam with it, even if some share-holders are common between B and C. Source: Introduction to Islamic Finance. Republished with the kind permission of Sheikh Muhammad Taqi Usmani.
