An Overview of Bay Salam

8/9/2019 An Overview of Bay Salam

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AN OVERVIEW OF BAY' AL-SALAM

Introduction

Salam is a transaction in which the price is paid immediatelyfor goods which are to be delivered later but are specified inthe contract.

E.g - A customer went into a boutique shop and ask the

tailor to tailor-made a suit, the customer pays first beforedelivery of the suit at a specified date.


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PILLARS OF AL-SALAM

Rabb as-salam/ Musallim

- BuyerMuslam Ilaihi

- Seller

Ra's al-Mal

- Price Al-Musallim Fih

- Product

Sighah - Ijab ( Offer )

- Qabul ( Acceptance )


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CONDITIONS

i - Seller undertakes to supply goods tobuyer at a future date in consideration ofa price fully paid in advance at the time

the contract is made.ii- Specifications, quality, quality of thegoods must be determined to avoid gharar.

iii- Date and Place of deivery must be

agreed.iv- Buyer cannot sell back the commodity tothe Seller after delivery.


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THE USE OF SALAM CONCEPT

Salam concept is mainly used in the agricutural

sector where farmers need money to grow their

crops and to maintain their family untill harvest

time.


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HOW PURE SALAM CONCEPT

WORKS IN BANKING SECTOR.

Ra's al-Mal

Price

Offer & Acceptance

Musallim Muslam Ilaihi

Buyer Seller

e.g Bank e.g Farmer

Musallim Fih

Product

e.g Pineapple


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STEPS OF THE ABOVE CHART

Step 1 : The bank offer a purchase price to the farmerbased on credit worthiness evaluation, crop

quality,delivery date, etc.

Step 2 : Farmer accepts the offer and sign a bai salamcontract with bank.

Step 3 : The bank pays the purchase price on the spot ofsigning the contract.

Step 4 : Farmer delivers the Pineapple to the bank atthe

specified date.Step 5 : The bank then sells the Pineapple to a 3rdparty.NOTE : The selling price is higher than thepurchase

price and that is the profit of the bank.


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RISK OF PURE SALAM

a)Commodity Price Risk - when receiving

the goods, the price may be lower than

the price originally expected, the bank

will be at loss. b)Quality Risk- Goods received might notmeet

the desired quality.

c) Asset Holding risk - bank will incur loss in

spending money to storethe goods receive.

d)Fiduciary Risk - Seller might not deliver.


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TO CURE THE RISK

Islamic Bank comes out with 3 products :

1) Parallel Salam Financing

2) Hybrid Salam Financing3) Salam Financing Working Capital


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PARALLEL SALAM FINANCING

BANK SELLER

BUYER

1

3

2


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HYBRID SALAM FINANCING

BANK

SELLER

12

3

CUSTOMER

4

5


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SALAM FINANCING WORKING CAPITAL

BANK SELLER

Group of purchasers


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APPLICATION OF SALAM FINANCING IN

MALAYSIA

AGRO Bank (formerly knon a! Bank Per"an#an Malay!#a$

AB %a! en&a&e' #"% BERNAS a &o)ernmen"*one' r#+e

%ole!aler a! "%e "%#r' ,ar"y -.yer ("o re'.+e r#!k of !alam$/

AB may ,.r+%a!e r#+e !l#&%"ly more "%an RM012 "o f.r"%er

a""ra+" farmer! "o .!e "%e Salam fa+#l#"y -." "%#! 'e,en'! on

"%e ,r#+e offere' -y BERNAS "o AB/

BERNAS #ll f#n' "%#! arran&emen" #n #"! fa)o.r a! #" !e+.re!

"%em r#+e !.,,ly a" rela"#)ely loer ,r#+e! !#n+e farmer! +an

!ell "%e ,ro'.+e "o #n'e,en'en" r#+e 'ealer! a" a -e""er ,r#+e/B." "%e Salam +on"ra+" #ll #n+rea!e BERNAS marke" !%are

!#n+e any Salam +on"ra+" ma'e -e"een farmer! an' AB

mean! a &.aran"ee' !.,,ly of r#+e "o BERNAS/


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AN OVERVIEW OF BAL AL ISTISNA'

Introduction

Istisna is a contract with a manufacturer whom

provides both raw materials and labour to

manufacture a product for a determined price

and deliver it at a specified time. The price of the

manufactured product can be paid at future

date.


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E.g - A customer ordered a car from the

manufacturer according to the specifications

agreed, the manufacturer then deliver the car to

the customer. Then, after delivery, the customer

will pay the price of the car in lump sum or byinstallment.


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PILLARS OF ISTISNA'

Mustasni'

- CustomerSani'

- ManufacturerRa's al-Mal

- The PriceMasnu

- The ProductSighah

- Ijab ( Offer )

- Qabul ( Accpetance )


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CONDITIONS

i ) The subject matter must be a munufacturedproduct

ii) The subject matter must be such that it neededtime to be made.

iii) If failed to comply with agreed specifications,the customer can reject the product.

iv) Payment of price of the product can be deferredto a future date by installment or lump sum.


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HOW IT WORKS IN BANKING

SECTOR


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STEPS OF THE ABOVE CHART

Step 1 : Istisna agreement made between customer andbank where bank agrees to construct a house in

accordance with specifications.

Step 2 : Of course Bank will not construct a house, it will

made a second agreement with the constructor to

build the house.

Step 3 : The constructor will then deliver the house to the

Bank.

Step 4 : The Bank will pay the total istisna amount to the

Constructor i.e. cost of building the houseStep 5 : The Bank will deliver the house to the customer

Step 6 : The Customer will pay the istisna amout i.e. the

total istisna amount to be paid to the Bank.


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DIFFERENCES BETWEEN BAY’AL-SALAM

AND BAY’ISTISNABAY’ AL-SALAM BAY’ ISTISNA’

SUBJECT Salam +an -e effe+"e' on any "%#n&no ma""er %e"%er #" nee'!man.fa+".r#n& or no"/

T%e !.-3e+" of I!"#!na #! alay! a "%#n&%#+% nee'! man.fa+".r#n&

NATURE I" #! ne+e!!ary for Salam "%a" "%e ,r#+e #! ,a#' #n f.ll #n a')an+e

Paymen" for I!"#!na +an -e ma'e #n!"a&&ere' -a!#!

CONTRACTT%e +on"ra+" of Salam on+eeffe+"e' +anno" -e +an+elle'

.n#la"erally

T%e +on"ra+" of I!"#!na +an -e +an+elle' -efore "%e man.fa+".rer !"ar"! "%e ork

DURATION

T#me of 'el#)ery #! an e!!en"#al ,ar"of "%e !ale

(T%e ,enal"y amo.n" #! "o ,a#' "o

+%ar#"y 4 no" "aken a! -enef#" for "o"%e -.yer$

T#me of 'el#)ery of #!"#!na5 ,ro'.+"'oe! no" %a)e "o -e f#6e'

( Any ,enal"y for +%ar&e' la"e 'el#)ery

+an re'.+e "%e ,r#+e of an I!"#!na+on"ra+"$

An Overview of Bay Salam

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