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

Author Credit:

This blog is adapted from an article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. The original article was published on June 25, 2015.

Introduction

Salam is an important transaction in Islamic finance. It refers to an agreement between a buyer and a seller in which the buyer pays the price in advance, while the seller agrees to deliver a specific commodity at a future date.

In simple terms, Salam allows payment today for goods that will be delivered later. However, this mode of finance was not introduced merely as a commercial tool. It had a strong social and economic purpose behind it.

The Original Purpose of Salam

According to Muhammad Rizwan-ul Haque, the need for Salam arose after Riba was declared forbidden. At that time, many small farmers and traders needed money to continue their work and support their families.

Farmers required funds to purchase seeds, materials, and other necessities before their crops were ready for harvest. Traders also needed money to buy and transport goods before they could sell them in the market.

Since interest-based borrowing was no longer allowed, Salam provided a Shariah-compliant alternative. It allowed financially weak farmers and traders to receive payment in advance against real goods or produce that would be delivered later.

Salam Was Meant to Support the Financially Weak

The spirit of Salam was to support people who were genuinely in need. It was a practical solution for those who had real goods, crops, or trade activity, but lacked immediate cash.

This is an important point. Salam was not designed as a tool for artificial financial gain. It was connected to real economic activity, actual commodities, and genuine trade.

The seller was not simply selling a paper or document. The transaction was based on expected goods or agricultural produce that would later be delivered to the buyer.

Salam and the Prohibition of Riba

When Riba became forbidden, people could no longer rely on interest-bearing loans. Salam helped fill that gap in a permissible way.

However, the price of the commodities in Salam was not meant to be linked with prevailing interest rates. The purpose was not to recreate interest-based lending under a different name. Rather, it was to provide relief and support through a real trade-based transaction.

This difference is very important for understanding the true nature of Islamic finance. Islamic finance is not only about changing the form of a contract. It is also about preserving fairness, justice, and the ethical purpose behind the transaction.

Salam in Trade Activities

Salam was also useful for traders. People of Makkah used to carry local goods to other places for sale. They would also buy goods from outside and bring them back to Makkah to sell in the local market.

Often, these traders needed money before starting their journey or before completing their trade cycle. Salam allowed them to raise funds by selling expected goods in advance.

Again, the key point is that Salam was linked to real goods and genuine trading activity. It was not merely a financial arrangement for leverage or profit maximization.

Concern With Modern Islamic Banking and Finance

The 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 supporting small farmers, traders, and financially weak individuals, Salam may sometimes be used as a leveraging tool for wealthy businesses and capitalists.

When this happens, the spirit of Salam becomes questionable. If the transaction is structured mainly to maximize profit and imitate the result of interest-based financing, then it may lose its true Islamic character.

Is Salam Being Used in Its True Spirit?

This raises an important question for modern Islamic banking and finance: is Salam still serving the people it was originally meant to support?

The Islamic financial system is not only about avoiding the word “interest.” It is about creating a fair, ethical, and real economy where money is connected to trade, production, risk, and responsibility.

For Salam to remain a truly Islamic mode, it must continue to serve its original purpose. It should help those who need liquidity for real production and trade, especially farmers, traders, and financially weaker segments of society.

Conclusion

Salam is a valuable Islamic financial contract when used according to its proper conditions and purpose. It was allowed as a means of support for people who needed upfront payment while avoiding Riba.

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

The challenge for Islamic financial institutions today is to ensure that

Salam remains faithful not only to the legal structure of Islamic finance, but also to its ethical and social objectives.

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.