Salam

A forward sale contract where the buyer pays the full price in advance for goods to be delivered at a future date. The quality, quantity, and delivery date must be clearly specified at the time of contract.

Salam is one of the few exceptions to the general Islamic rule against selling what you do not possess — it was specifically permitted by the Prophet Muhammad (peace be upon him) for agricultural products. In modern Islamic finance, parallel Salam structures (where the bank enters two separate Salam contracts) are used for commodity financing and working capital.

Salam is the prepaid forward sale: the buyer pays the full price today for fungible goods delivered at a fixed future date — the reverse of ordinary credit sales, where goods come first and money later. It is one of fiqh's two sanctioned exceptions to selling what you don't yet possess, validated directly by the Prophet in Madinah, who found farmers taking one- and two-year advances on crops and regulated rather than banned the practice: 'whoever pays in advance, let it be for a known measure, known weight, and known term' (Bukhari, Muslim).

AAOIFI codifies it in Shariah Standard No. 10. The discipline is in the conditions: full payment at signing (otherwise it becomes trading debt for debt), precisely specified fungible goods (grade, quantity, delivery date — specific unique items can't be salam'd), and goods of a kind normally available at the delivery date.

Classical purpose and modern uses align: it is production finance for the small producer — Islamic microfinance and agricultural programs use salam to fund farmers' seasons, and 'parallel salam' lets a bank pre-sell the expected delivery to a third party, monetizing the position without shorting assets it never owned. Salam also anchors the fiqh analysis of modern instruments: it is why prepayment-based structures can be halal while conventional futures (margin-traded, cash-settled, no intention of delivery) generally fail — the classical contract requires real money meeting real goods, just separated in time.