Will Salam Remain an Islamic Mode the Way It Is Being Used?

Author Credit:

This article is based on the original LinkedIn post written by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. Originally published on June 25, 2015.

Introduction

Salam is one of the important modes of Islamic finance. It refers to a transaction between a buyer and a seller in which the buyer pays the full price in advance, while the seller promises to deliver a specific commodity at a future date.

In its original spirit, Salam was not created as a tool for financial engineering or profit maximization. Rather, it was allowed as a practical solution for people who needed financial support without falling into Riba.

The Original Purpose of Salam

According to the understanding shared by Muhammad Rizwan-ul Haque, Salam became necessary when Riba was declared forbidden. Many small farmers, traders, and financially weak individuals needed money to purchase seeds, goods, raw materials, or other essentials for their livelihood.

Before harvest or before completing their trade journey, they required funds to survive and continue their economic activity. Since interest-based borrowing was no longer allowed, Salam provided them with a Shariah-compliant alternative.

Through Salam, farmers and traders could sell their future produce or expected goods in advance and receive payment immediately. This helped them meet their basic needs while avoiding interest-based loans.

Conditions and Spirit of Salam

The permissibility of Salam was subject to specific conditions. The commodity had to be clearly defined, the delivery date had to be agreed upon, and the price had to be paid upfront.

However, the most important point highlighted in the original article is the spirit behind the transaction. Salam was introduced to support those who were genuinely in need, especially small farmers and traders who lacked financial strength.

It was not meant to become a replacement for interest-based lending in form while keeping the same profit-driven mindset in substance.

Salam and the Prohibition of Riba

When Riba was prohibited, financially weak people could no longer rely on interest-bearing loans. Salam offered a way for them to raise funds by selling real goods or agricultural produce in advance.

This distinction is very important. Salam was connected to actual commodities, real economic activity, and genuine trade. It was not merely a paper transaction or a financial document designed to create leverage.

In the original Islamic framework, the transaction was based on goods, production, delivery, and real market needs.

Salam in Trade Activities

Salam was not limited only to agricultural produce. Traders in Makkah also used to travel with local goods to sell in other regions. Similarly, they would buy goods from outside and bring them back to Makkah for sale.

These traders often needed funds before beginning their journey or completing their trading cycle. Since interest-based borrowing was prohibited, they were also allowed to sell expected goods in advance under Salam.

Again, the transaction was linked to real goods and genuine trade activity, not artificial financial structuring.

The Concern With Modern Islamic Banking and Finance

The major concern raised by Muhammad Rizwan-ul Haque is that some Islamic financial institutions may be using Salam in a way that moves away from its original purpose.

Instead of serving small farmers, traders, and financially weak communities, Salam may sometimes be used as a leveraging tool to assist capitalists and maximize profit.

If Salam is structured only to replicate the outcome of interest-based financing, without serving its original social and economic purpose, then it risks losing its Islamic spirit.

Is Salam Still Serving Its Purpose?

This raises an important question for modern Islamic banking and finance: is Salam still being used to support real economic activity and financially vulnerable people, or has it become another financial product designed mainly for institutional profit?

The Islamic financial system is not only about avoiding certain words or replacing conventional contracts with Islamic names. It is about fairness, justice, risk-sharing, real trade, and avoiding exploitation.

For Salam to remain a truly Islamic mode, it must stay connected with its original objective: supporting those who need liquidity for genuine production and trade.

Conclusion

Salam is a valuable Islamic financial contract when used according to its proper purpose and conditions. It was allowed as a mercy and facilitation for farmers, traders, and financially weak individuals who needed upfront payment while avoiding Riba.

However, when Salam is used mainly as a leveraging tool for wealthy market players, its purpose becomes questionable.

The real challenge for Islamic financial institutions today is not only to structure products that appear Shariah-compliant, but to ensure that these products remain faithful to the ethical and social objectives of Islam.

Credit: This blog is adapted from the article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust.