Contracts and Deals in Islamic Finance: A User s Guide to Cash Flows, Balance Sheets, and Capital Structures

Chapter 7Salaam and IstisnaDeferred Delivery Sale

The contracts of salaam and istisna are sale-based contracts between two or more parties that involve the sale of an asset that does not exist at the time the contract is negotiated. It is a sale contract for goods either that are not in the possession of the seller but are available from another vendor, or that need to be either grown or manufactured. If the reader recalls, the Prophet ([saw] peace be upon him) laid restrictions on sale contracts requiring the seller to own an asset before selling it to a third party. In general, therefore, the Prophet (saw) laid restrictions on future sales or spot sale of goods not in the possession of the seller. The Prophet ([saw] peace be upon him), however, offered exceptions to this rule for agricultural goods, and goods that by their very nature are made to order.¹

Although salaam and istisna contracts are similar to each other, we deal with them separately.

Salaam

The contract of salaam requires all of the conditions of a normal sale contract except that it does not require the existence of the asset or good at the time of the creation of the contract. A seller wishing to sell an asset that is not in the sellers' possession would enter into a salaam contract with a buyer. The buyer would pay in full the negotiated purchase price of the asset on spot, and the seller would contract to deliver the said asset at a specific date to the buyer at a specific location in the future. The performance ...