Islamic Finance Contracts

The Bai Salam and the advance payment for goods

Islamic Finance Contracts









The Bai Salam is a contract of Islamic law according to which a payment is made in advance for goods that must be delivered in the future. It is the most used contract in the practice of the Islamic business, through which the purchase orders are carried in compliance with Islamic Law.

With this contract, the seller agrees to deliver certain goods to the buyer at a future date, receiving in return an advance full paid payment, at the time of acceptance of the contract. 

About the object of the contract, all goods can be sold, except gold, silver and currencies that are based on them. Sharia does't impose any particular limitations on the quality and quantity of the goods. But unlike other contracts in Islamic finance, in the Bai Salam the quantity of goods must be clearly specified in the contract, so no doubt or dispute may arise on its interpretation.

Similarly, the exact date and place of delivery must be specified in the contract.

An essential element of Bai Salam is that the price of the goods must be fully paid at the time of acceptance of the contract. So the buyer can show that he will not assume any debt with third party in the future to fulfill the debt with the seller (a practice that is prohibited by Islamic law).