Bai salam is an Islamic finance tool used to generate working capital and consists of a contractual sale in which advance payment is made by the buyer to the seller for the deferred supply of goods at a specified date pre-determined in the contract. Thus, it is a sale and purchase transaction whereby the payment is made in cash at the point of contract, but the delivery of the asset purchased will be deferred to a pre-determined date.
Parallel Salam
The financier may at the same time enter into a parallel but separate bai salam with a third party to resell the asset for an increased price or it may simply sell the asset on delivery.
Conditions of the Parallel Salam
- There must be two different and independent contracts, these two contracts cannot be tied together, and performance of one should not be contingent on the other.
- Parallel Salam is allowed with the third party only.
