Salam

Salam (Arabic: بيع السلم) is an Islamic forward purchase contract in which full payment is made in advance (at the time of contract) for goods to be delivered at a future specified date. Unlike conventional forward contracts, the full price must be paid upfront — Salam is thus a form of advance financing to sellers, particularly farmers and commodity producers. It is an explicit exception to the general Shariah prohibition against selling what one does not own, permitted by Prophet Muhammad (PBUH) for agricultural purposes. Parallel Salam, where the bank enters a back-to-back Salam as seller to a third party, is used to hedge commodity risk. It is governed by AAOIFI Shariah Standard No. 10 and is widely used in agricultural and commodity trade finance across Islamic banks in the GCC, Pakistan, and Malaysia.