Bai-Salam Contract: Bai Salam is a form of forward contract when the price for an asset is paid upfront at the time of the contract for an asset or commodity to be delivered later. In Arabic, the word bai means sale, salam means delivery. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. According to normal rules of the Sharia, no sale can be affected unless the goods are in existence at the time of the bargain, but Salam sale forms an exception given by the Holy Prophet himself to the general rule provided the goods are defined and the date of delivery is fixed. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. It has the following features:
- One end of the contract must be settled on the spot.
- It is the seller’s obligation that is deferred to a future date; thus the underlying commodity must be delivered at maturity.