Salam and Parallel Salam — Forward Sale

Definition and Key Distinction from Conventional Forwards

Salam (سلم) is the sale of a specified commodity for deferred delivery in exchange for IMMEDIATE payment of the full price. In Murabahah, goods are delivered now and payment is deferred; in Salam, payment is made now and goods are delivered later. Critical distinction from conventional forwards: in Salam, the FULL price must be paid upfront (not just a margin deposit); the commodity must be precisely specified; and it cannot be from a specific field or farm — must be defined generically.

Conditions for a Valid Salam Contract

Capital (price) conditions: Capital must be paid IMMEDIATELY at the place of contract. Exception: delay of 2–3 days MAXIMUM, and only if the delay period is less than the delivery period. Capital may be cash, fungible goods, or usufruct. A pre-existing DEBT cannot be used as Salam capital — this prevents disguised riba.

Subject matter (Al-Muslam Fihi) conditions: Must be fungible goods (weighed, measured, or counted). Factory products with standardized specifications are permissible. Precious stones with significant individual variation are NOT suitable. Type, kind, quality, and quantity must be precisely specified. Delivery date and place must be determined. Commodity must be AVAILABLE in the market at the time of delivery. Cannot be from a specific identified source. Must not be gold, silver, or currencies when the capital is also monetary.

Parallel Salam

Parallel Salam allows the institution to hedge its delivery risk by entering a SEPARATE Salam contract with a different party. The TWO contracts must be completely INDEPENDENT — they cannot be linked or conditional on each other. The institution cannot use the same seller in both contracts. If the seller in Salam #1 fails to deliver, this does NOT discharge the institution's obligation under Salam #2.

Delivery and Default

Non-delivery: The buyer may: (a) wait for delivery, (b) cancel and recover the capital, or (c) accept substitute goods by mutual agreement. If cancellation: the full capital must be returned; the buyer cannot claim additional compensation for opportunity loss. The buyer CANNOT sell the Salam commodity before receiving it — this is selling what you don't possess.

Contemporary debates in Salam

Parallel Salam. A bank that has bought a forward delivery from a farmer (Salam #1) often enters a second, offsetting Salam to a third-party buyer as seller (Salam #2). Classical permissibility is conditioned on a strict requirement that the two contracts be legally independent — no cross-default clause, no conditional linkage, no provision that performance of one is excused by non-performance of the other. The doctrinal worry is that linking the two converts a hedging structure into a single transaction in which the bank is, in substance, exchanging one debt for another (bay' al-kali' bi'l-kali'). Salam fi'l-manafi' (Salam in services). The majority position is that Salam is admitted only over fungible goods that can be defined by weight, measure, or count. A minority Hanafi view associated with al-Sarakhsi in al-Mabsut admits Salam in services where the service can be tightly specified — a position that has gained traction in contemporary application to prepaid software subscriptions, training services, and SaaS contracts, where the underlying performance is sufficiently standardisable that the gharar normally feared in services is materially reduced. Modern parametric structures. Weather derivatives and parametric agricultural insurance pose a question Salam was never designed to answer: can a forward sale be re-engineered around a parametric trigger (rainfall index, temperature index, satellite-measured yield) rather than around a delivery of physical commodity? Contemporary scholars are divided. The cautious view is that parametric pricing reintroduces precisely the gharar that Salam's strict-specification regime was meant to remove — the trigger's realisation is uncertain in a way the underlying delivery in classical Salam was not. The more permissive view is that where the parameter is well-defined, observable, and tightly correlated with the agricultural risk being managed, the structure can be assimilated to Salam in substance even if it does not match the classical form.