Bai Salam (Forwards Sale of Goods)

Advance Funds

Future Deliveries

Bai Salam

Bai-Salam is a financing arrangement where the bank makes an upfront payment for a product or commodity before it’s produced or delivered. The contract specifies all the details, such as size, quality, and quantity, as well as the delivery time and location. It also outlines who will cover the transportation and storage costs to prevent any misunderstandings. This method is commonly used to provide funding for industrial and agricultural products, ensuring production can continue without delays due to lack of funds.

Features

There must be a written contract between the Bank and the client which shall be the principal instrument to govern the advance buying and selling.
The name and description of the commodity, specification, quantity, quality, size, date, time and place of delivery, transportation cost & godown rent if any, must be mentioned clearly in the contract.
The purchase price shall be paid in advance as mentioned in the contract immediately after signing the agreement. If mentioned in the contract delivery of the commodity/product can be taken in instalments also.
If the client fails to deliver the commodity in time as per specification as well as in specified quantity, the client shall be bound to repay the price received earlier in advance against the product alongwith compensation for delayed period.
Bai-Salam is the only exceptional mode allowed by Islamic Shariah in which case goods can be sold without having goods in possession & existence.

Benefits

Buyers can protect themselves from future price fluctuations.
It can help buyers plan their inventory needs more effectively.
Buyers can spread out the cost of a purchase over time, improving their cash flow management.
Bai Salam provides a predictable income stream, helping sellers plan their finances more effectively.