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BAY' AL-SALAM

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BAY' AL-SALAM Powered By Docstoc
					MAHYUDDIN KHALID      emkay@salam.uitm.edu.my
                            CONTENT
               DEFINITION
 DEFINITION
               EVIDENCE
  EVIDENCE     PILLARS OF AL-SALAM
               OBJECTIVE OF BAY’ AL-SALAM
  OBJECTIVE
               CONDITION OF BAY’ AL-SALAM
 CONDITION
               DISADVANTAGE OF BAY’ AL-SALAM

COMPARISON


APPLICATION




     2
                              INTRODUCTION
               This contract is crucial during the time of prophet
 DEFINITION
                hood and at the time where agricultural sector
                become outstanding and supreme.
  EVIDENCE
               The wisdom of making salam permissible lies in the
  OBJECTIVE     fact that salam facilitates a types of financing for
                people in need of it.
 CONDITION     By using salam contract, the buyer may benefit from
                its permissibility as well, by acquiring the
COMPARISON      commodity at a price below the market price.
APPLICATION




     3
                                   DEFINITION
               Literally salam means giving (‘ita’), advance (taslif)
 DEFINITION
                and leaving
  EVIDENCE
               Technically:
                  Sale contract over prescribed commodity sold as a
  OBJECTIVE        deferred liability on one party, in exchange for a price
                   that is received during the contract session
 CONDITION     Maliki defined it as a sale in which capital sum
                (price) is paid in advance and the object of sale is
COMPARISON      deferred to a specified term.
               AAOIFI defined salam as the purchase of
APPLICATION
                commodity for deferred delivery in exchange for
                immediate payment.

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                                DEFINITION
               Bay’ as-Salam or Salam means a contract in which
 DEFINITION
                advance cash payment is made for goods to be
                delivered later on.
  EVIDENCE
               The seller undertakes to supply some specific goods
  OBJECTIVE     to the buyer at a future date in exchange of an
                advance price fully paid at the time of contract.
 CONDITION     Salam- also know as sales by order.

COMPARISON


APPLICATION




     5
                                     EVIDENCE
               Al-Quran
 DEFINITION           .

  EVIDENCE
                 lbnu Abbas commented that: ‘I bears the witness that al-Salaf
                  (Al-Salam) stipulated for a stated term had been made legal
  OBJECTIVE       by Allah in His holy book and His permission is in it”. He
                  then recites the above verse.
 CONDITION
               Hadith
                 Narrated by lbn Abbas: The Messenger of Allah (s.a.w) came
COMPARISON
                  to Medina and the society used to pay in advance the price of
                  fruits to be delivered within one or two years (the sub
APPLICATION
                  narrator is in doubt whether it was one to two years or two to
                  three years)
                 The Prophet S.A. said, “Whoever pays money in advance for
                  dates (to be delivered later) should pay it for known specified
                  weight and measure (of the dates).
     6
                                    EVIDENCE
               Ijma’
 DEFINITION
                 Every single jurist that we came across had given their
                  consensus with regards to the permissibility of Bay’ Al-
  EVIDENCE
                  Salam particularly because the product in sale is one of
                  counter-values in a contract (similar to the
  OBJECTIVE       permissibility of postponing the monetary payment
                  which is one of the counter — value as well).
 CONDITION
                 There is also the need of the people in it. The owners of
                  the agricultural products and businesses also needed
COMPARISON        some financing to support themselves or to fund their
                  crops until the day of harvesting. Hence, it is made
APPLICATION       permissible to fulfill these needs.




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                       NATURE OF BAY’ AL-SALAM
               Salam transaction occurs if the buyer has paid the
 DEFINITION
                purchase price to the seller in full at the time of sale.
                This is necessary so that the buyer can show that
  EVIDENCE
                they are not entering into debt with a second party
  OBJECTIVE
                in order to eliminate the debt.
               Salam is actually an exception from the general
 CONDITION      ruling on the illegality of selling non—existence
                items (Bay’ Ma’dum) since it can achieve certain
COMPARISON      economic objectives, as a rukhsah (exception) and
                an assistance for the people.
APPLICATION
               Debt does not necessarily involve cash money but it
                can also involves every single item and property by
                the business society as a tradable item.
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                          PILLARS OF AL-SALAM
               Rabb as-salam/ Musallim
 DEFINITION
                 The Buyer
  EVIDENCE     Muslam Ilaihi
                 The Seller
  OBJECTIVE    Ra’s al-Mal
                 The Price
 CONDITION
               Al-Musallim Fih
COMPARISON
                 The Product
               Sighah
APPLICATION      Ijab (Offer)
                 Qabul (Acceptance)


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                     FLOWS OF BAY’ AL-SALAM
                                      1) Ijab (Offer)
 DEFINITION


                                3)
                                     Ra’s al-Mal
  EVIDENCE
                                       (Price)

  OBJECTIVE

              Rabb as-salam/
                                                        Muslam Ilaihi
 CONDITION      Musallim
                                                          (Seller)
                 (Buyer)
COMPARISON


APPLICATION
                                Musalllim Fih
                               4)
                                 (Product)


                               2) Qabul (Acceptance)
    10
                       TYPES OF SALAM CONTRACT

 DEFINITION    Ordinary salam contract         Parallel salam contract

              • The normal salam             • Contractual agreement
  EVIDENCE
                contract that involves         consists of two different
                two transacting parties;       and independent
  OBJECTIVE     the buyer (musallim) and       contracts; one in which
                the seller (musllam ilayh)     the bank is a buyer and
 CONDITION                                     the other in which the
                                               bank is a seller.
COMPARISON
                                             • The two contract cannot
                                               be tied up and
                                               performance of one
APPLICATION
                                               contract should not be
                                               contingent upon the
                                               other.

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                 THE OBJECTIVES OF BAY’ AL-SALAM
               Provide the financing for small and medium
 DEFINITION
                enterprises
                 The economic reality underlying the contract of Salam,
  EVIDENCE
                  the ordering of goods to be delivered later for a price
                  paid in advance, was the financing of the business of a
  OBJECTIVE
                  small trader or artisan by his customers.

 CONDITION
               Benefits the trader or producer
                 Provides Islamically accepted financing alternative and
COMPARISON
                  avoids any involvement in riba
               Benefits the purchaser
APPLICATION      Provides goods and products at a discounted price in
                  return for the willingness of the purchaser to help the
                  financing of the business venture.

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                       CONDITIONS OF AL-SALAM

 DEFINITION    The jurists from various mazhab had agreed
                that Bay’ Al-Salam is permissible provided
  EVIDENCE    that it specifies these six aspects (4 Ps + 2 Qs):
  OBJECTIVE       Product: The types and kinds of goods involved in the trade.

                   Period: The duration of the contract and its date of delivery.
 CONDITION
                    Price: The amount of capital or price paid for the contract.
COMPARISON
                   Place: Place of delivery for the merchandise when it is due.

APPLICATION
                   Quality: The characteristics and specifications of every item.

                     Quantity: The quantity of goods ordered by the buyer.


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                      CONDITIONS OF AL-SALAM

 DEFINITION   Conditions related to the price (ra’s al-mal)
              • The price must be clearly determined and paid in full
  EVIDENCE
                by the buyer at the time of undertaking the sale to
                avoid later dispute.
  OBJECTIVE
              • The seller must take possession of the price in full
                before daperting one another; OTHERWISE it will be
 CONDITION
                tantamount to the sale of debt for a debt which is
                prohibited.
COMPARISON
              • Maliki jurist allowed it to be paid within few days as
                long as it is not stipulated as conditions.
APPLICATION
              • If the price is ribawi item, it is not allowed to be
                exchanged for another ribawi item to avoid riba. Eg:
                wheat with barley.
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                         CONDITIONS OF AL-SALAM

 DEFINITION
              Conditions related to the purchased commodity
              (mussalam fih)
  EVIDENCE    • Salam can be effected on commodity whose quality and quantity can be
                clearly specified; commodities which quality and quantity cannot be
                specified cannot be sold through salam.
  OBJECTIVE   • The commodity must be vastly available in the market at the time of
                contract until the time of delivery, to ensure the capability of the trader
                to deliver the product.
 CONDITION
              • The quantity, weight and measure of the commodity must be agreed
                upon in equivocal terms.
COMPARISON
              Conditions related to the date and place of delivery
APPLICATION
              • The exact date and place of delivery must be specified in the contract
              • Scholars differ on the shortest duration of time of delivery either 3 days,
                more than half a day thirty days or up to the contracting parties to
                decide.
    15
              DIFFERENCES OF BAY’ AL-SALAM AND BAY’ ISTISNA’

               Bay’ Al-Salam and Bay’ Al-Istisna’ are both deferred
 DEFINITION     delivery contract, however both instruments have its
                own application.
  EVIDENCE     Salam is equivalent to a forward sales for
                agricultural products while,
  OBJECTIVE    Istisna’ is a forward sales for manufacturing or
                construction contract.
 CONDITION
              BAY’ AL-SALAM                         BAY’ ISTISNA’
              Salam can be effected on any thing,   The subject of Istisna is always a
COMPARISON
              no matter whether it needs            thing which needs manufacturing
              manufacturing or not.
APPLICATION   It is necessary for Salam that the    Payment for Istisna can be made in
              price is paid in full in advance      staggered basis.
              The contract of Salam, once           The contract of Istisna can be
              effected, cannot be cancelled         cancelled before the manufacturer
              unilaterally                          starts the work
              DIFFERENCES BETWEEN BAY’ AL-SALAM & NORMAL SALES

              BAY’ AL-SALAM                  ELEMENT    NORMAL SALES
 DEFINITION
              Must specified the duration    DURATION   Does not permit any time
              of the contract and its date              frame
  EVIDENCE    of delivery

  OBJECTIVE

              A contract in which advance    NATURE     A permanent contract
 CONDITION    cash payment is made for                  without any specified
              goods to be delivered later               period of expiration
COMPARISON    on

              At a discount – cheaper than   PRICING    Market rate – based on the
APPLICATION   normal pricing                            ability to pay cash

              Any thing, no matter it        SUBJECT    Physical Goods and
              needs manufacturing or not.               property

    17
                                  APPLICATION
               This concept rarely used by Islamic banks because it
 DEFINITION     does not facilitate many advantages as compared to
                other concepts.
  EVIDENCE     The prices of purchased commodities in as-salam should
                be paid in advance while the subject matter will be
  OBJECTIVE     delivered at a later date.
               In general it clearly differs from numerous Islamic bank
 CONDITION
                products, which provides better position for the
                customer who are in need, in which they would obtain
                the desired commodity with a deferred payment term.
COMPARISON
               Islamic banking product which are based on this concept
                are:
APPLICATION
                  Hybrid Salam Financing
                  Salam Financing Working Capital
                  Parallel Salam Financing

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                     HYBRID SALAM FINANCING

 DEFINITION
                           Seller

  EVIDENCE


  OBJECTIVE
               4                           1

 CONDITION


COMPARISON

                           4
APPLICATION   Bank                      Customer
                                    2



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                 SALAM FINANCING WORKING CAPITAL

 DEFINITION   Agency
              appointment                               Normal sale
                               Customer A           3
  EVIDENCE


  OBJECTIVE     2                            1
                            Salam contract
 CONDITION


COMPARISON


APPLICATION     BANK                             Group of Purchaser




    20
                  PARALLEL SALAM FINANCING

 DEFINITION
                                                   Salam A
                                          1
  EVIDENCE
                BANK
                             2
                                 Agent
  OBJECTIVE


 CONDITION
                  2                           Customer A

COMPARISON

                                         Salam B     3
APPLICATION

              Customer C


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              END OF CHAPTER

 DEFINITION


  EVIDENCE


  OBJECTIVE


 CONDITION         
COMPARISON


APPLICATION




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