Application of Salam

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Application of Bai’ Salam In Bai’ Salam is a type of product that the bank or financial institution will give the liquidated cash or capital in advance to the needy to produce their commodities and later the commodities will be deliver to them. While in Bai’ Salam itself it can be divided into three difference type of contracts. They are parallel Salam, Hybrid Salam and also Salam financing working capital. Firstly, the parallel Salam is a common salam that use by the bank and the customer. In a parallel Salam, the bank itself will be entering into two different contracts with two different parties. In this two different contracts, the bank acted as different role. In the first contract the bank will acted as a buyer while entering the second the bank’s role had change from buyer to a seller. As we can know from the name of this contract, parallel salam, which also means that both contract that entered by the bank or financial institution cannot be tied together with each other. In other words, both contracts must not have any relations and must be independent from each other. All the rights and obligations that had been imposed or set in each contracts will stand alone and independent. Those regulations performance shall not be look as a whole or put together as both contracts must be independent. Therefore, both contracts must not contingent with each other. The flows of this type of contract will be start when the bank acted as a buyer and entered a contract with the another party who acted as a seller by selling his or her commodities to the bank. The bank will first give liquidated cash and capital that need by the seller before he can produce his commodities. The payment will be done in advance and also in full and the delivers of commodities will be done later. Next, after received the commodities from the seller, the bank will change his role to a seller and entered another contract with the customer or buyer who will buy the commodities from the bank. The payment will be given in a purchase price along with the profit margin. The bank will gain from the profit margin that paid by the customer. For example, Islamic Bank had entered a Salam contract with Farmer A to purchase 2000 sack of rice which will be delivered 6 months from the dated the agreement entered. The bank will give RM 500 000 to Farmer A to plant crops until harvest, packaging in advance. Later, Farmer A will deliver the 2000 sack of rice to the bank on the agreed date. Meanwhile, the bank had entered another salam contract with Customer B to sell the 2000 sack of rice in the purchase price RM 500 000 plus the profit margin RM 500 000. As both contract should not have any relation, the delivery of 2000 sack of rice to the Customer B have nothing relations to the delivery 2000 sack of rice from Farmer A to the Bank.

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