Major Principles in Islam: Seeking the halal (part 6) – Salam contracts
Seeking halal earnings (part 6) – The Salam contract
As part of our series on finance, we will look at one of the contracts. In this, I am following Imam al-Ghazali, in his book Iḥyaʾ ʿUlum al-Din. He has a section that speaks about halal earnings, and under that he mentioned the common contracts which most transactions might go through.
Every individual is likely to encounter one of these six contracts. One of these is the salam contract, which in English is referred to as the “forward sale,” but with specific conditions.
Advance payment
In a normal sale, you see the product, you pay cash, and you buy it. In salam, it is different: you know the product, but it is not yet ready. It may take six months, a year, or a couple of months. You pay in advance, and later you receive the product. This is what we call salam.
Salam was well known in the lifetime of the Prophet ﷺ, and even before his time. People used to deal with this type of contract. The beauty of Islam is that it did not abolish everything that people were familiar with, saying: “Let us destroy everything and start from zero on a new foundation.” No, the Prophet ﷺ did not do this.
Many people, especially some new Muslims, or Muslims who begin practicing with very harsh or rigid groups, sometimes develop this idea that we must destroy everything and start fresh. But this is not the prophetic approach at all. The Prophet ﷺ dealt with his community, his society, and his reality with hikmah and wisdom.
The Shariʿah filter
To put it simply, he used what we may call a shariʿah filter, or a screening criteria. He understood the reality of his people. This is part and parcel of being a leader: a leader must know his reality, the strengths and weaknesses of his community, the flaws and the good qualities, and then act accordingly. The Prophet ﷺ knew all of this, and in addition, he was himself a businessman. He knew the market, trade, and transactions very well.
So he applied this Shariʿah filter: anything in line with fairness, justice, and goodness, he accepted. Anything beyond fairness, justice, and goodness, he rejected. These are the two main criteria. Then there were practices in between, some could be rectified, some could not. Those which could be rectified, he permitted but with conditions. Those which could not be rectified because they contradicted the criteria of justice and fairness, he abolished.
For example, this very transaction of salam. People were using salam before The Prophet ﷺ was sent as a Messenger. So it was not something alien or newly introduced by Islam. It already existed.
Ibn ʿAbbas (may Allah be pleased with him) narrated in Saḥiḥ al-Bukhari and Saḥiḥ Muslim that when the Prophet ﷺ came to Madinah, he found that people were engaging in the salam contract, a forward sale. But he saw there were issues: difficulties, injustices, risks, and ambiguities. And you must remember these terms:
- Ambiguity (gharar): if it is present in a contract, it can sometimes nullify the contract. If the ambiguity is not rectifiable, the contract is invalid.
- Injustice (zulm): if present, this also nullifies the contract.
So, according to these conditions, The Prophet ﷺ examined the practice of salam.
Clarity
Ibn ʿAbbas (may Allah be pleased with him) narrated that when the Prophet ﷺ arrived in Madinah and found the people using salam, he noticed issues that could lead to disagreement, injustice, or oppression.
So he said ﷺ in the hadith:
مَنْ أَسْلَفَ فِي شَيْءٍ فَلْيُسْلِفْ فِي كَيْلٍ مَعْلُومٍ وَوَزْنٍ مَعْلُومٍ إِلَىٰ أَجَلٍ مَعْلُومٍ
Whoever enters into a salam (forward sale) must do so with a specified quantity, quality, weight, and term. In the past, people would sometimes make a contract without these details. For example, imagine a farmer with a large plot of land where he plants wheat. The harvest season is in the summer, but now it is winter and he has no wheat to sell. What can he do? He goes to a friend or to the market and says, “My land produces ten tons of wheat in a season, or twenty, or a hundred, depending on its size. I will sell you my crops in advance.” This is the main reason behind salam: the product is not yet in the market, it is still in the soil, not yet grown into ears and produce. Whether wheat, barley, fruits, or other crops, people used to sell them in advance.
The problem came when the buyer would ask, “How many tons? How many kilos? How many pounds?” and the farmer would answer, “I’m not sure, we will see.” This is not acceptable. The terms must be clear. If they are left vague, later there will be disagreement and injustice. One party might say, “We agreed on twenty tons,” while the other denies it: “My land could never produce twenty tons, where did you get this from?” and disputes begin. The Prophet ﷺ said this is not the way. It must be specified: twenty tons, agreed.
The same applies to the delivery time. It cannot be left to vague terms such as “when Allah wills.” It must be clear: when the harvest is due, or next year at a specific time. Likewise, the delivery arrangements must be specified: will the seller deliver, or will the buyer collect? This must all be agreed upon and written down.
Before, people sometimes conducted salam without these conditions, and sometimes with them. The Prophet ﷺ did not prohibit salam, but he established conditions for it. He said, you may continue with salam, but only with these specifications, otherwise injustice will occur.
Eliminating ambiguity, disputes and injustice
If you enter into salam, you must specify the measurement and the quantity. You must also specify the quality: is it the best grade, medium, or poor? If this is left unclear, when the time comes someone may deliver ten tons of inferior wheat while the buyer objects, saying, “This is not what we agreed; we agreed on good quality.” That is why it must be stated clearly. The term must also be precise. You may agree for next year, but which month, which date? Even if the crop takes two years to be ready, that is acceptable, but it must be written and agreed upon.
By specifying these details, disagreement is reduced and injustice is prevented. This is a practical example of how the Prophet ﷺ improved a contract that was otherwise vague and could lead to disputes and oppression in the community. If he had left it as it was, it would have become a cause of enmity and division. Many ahadith concerning transactions and dealings take into account not only fairness in trade but also the feelings of people, to safeguard harmony in society.
The well-being of the community
Do we conduct business on feelings? Of course not. But remember, business is not only about the exchange of money and goods. It is about the wellbeing of the whole community. It is not just “me, myself, and I.” When we trade, we must think of others. Just as you dislike being treated unjustly, you must not treat others with injustice. Be fair with people, just as you would want them to be fair with you. This is exactly what the Prophet ﷺ taught on many occasions. He forbade practices that create hatred, disagreement, and division.
For example, if I buy a car from you for £5,000. You ask £5,000, I pay it, and the sale is complete. Then along comes your friend and says, “Did you sell the car? For how much? £5,000. I’ll give you £6,000, just cancel the deal and sell it to me instead.” The Prophet ﷺ forbade this and said: لا يبع أحدكم على بيع أخيه “Let none of you sell over the sale of his brother.” Even though it looks like an extra thousand pounds in the seller’s pocket, the Prophet ﷺ said no. Why? Because it breeds resentment. And resentment leads to arguments, disputes, and broken ties. Anything that nurtures love in the community, the Prophet ﷺ encouraged. Anything that stirs up hatred, he forbade, and in many cases declared it haram.
Consumer protection
The salam contract was very common in Madinah, but not so much in Makkah. Ibn Abbas (may Allah be pleased with him) tells us that when the Prophet ﷺ arrived in Madinah, he found people already dealing with salam, because Madinah was an agricultural society. Makkah had no farmland; its people were merchants. Their livelihood came from trade routes to Yemen, to Sham, and even overseas. But Madinah was different: it had farms, with wheat, barley, dates, and other crops. Salam was therefore deeply rooted in their dealings. Ibn Abbas (may Allah be pleased with him) said that when the Prophet ﷺ saw this practice, he did not abolish it. Instead, he placed conditions on it, so that it would be just and fair. The purpose was to protect both buyer and seller. Today, we would call this consumer protection.
Investigating market practice
The Prophet ﷺ first examined how people actually conducted themselves in their markets. He did not legislate from a distance; he went himself. He visited the market as an inspector, like an auditor, checking whether conditions were being met, whether anyone was deceiving others. On one occasion he entered the farmer’s market and found a pile of wheat for sale. He put his hand inside the pile and discovered that beneath the dry surface it was wet. He asked, “Whose wheat is this?” A man replied, “It is mine, O Messenger of Allah.” The Prophet ﷺ showed him the wet wheat and asked, “What is this?” The man explained, “Rain fell on it and made it wet.” The Prophet ﷺ said, “Why did you not place it separately so people could see it was wet? Do not mix the wet with the dry and cheat people.” Then he declared the famous words:
مَنْ غَشَّنَا فَلَيْسَ مِنَّا
“Whoever cheats us is not one of us.”
The man asked, “What should I do then?” The Prophet ﷺ replied, “Separate them. Put the wet aside and keep the dry aside so people can see. If someone wishes to buy the wet wheat, let him do so, but at a cheaper price. Do not present it as dry and deceive people.”
This is the prophetic method of preserving and protecting people’s rights, ensuring justice and fairness in transactions. It is not simply about reading conditions in a book and applying them mechanically, but about safeguarding the bigger picture: the unity and harmony of the community.
Imagine if he ﷺ had not noticed the wet wheat. A buyer would have taken it home only to discover the deceit. He would return angry, accuse the seller of cheating, and conflict would erupt. Even if they did not fight, resentment would remain. The buyer might stop greeting him, refuse to trade with him, and enmity would spread. One dispute would lead to another, shop to shop, buyer to buyer, until the community became poisoned with hostility. This is precisely what the Prophet ﷺ came to prevent. He encouraged and strengthened every tool that fosters trust and love in society.
The very first thing he said on arriving in Madinah was:
أَفْشُوا السَّلَامَ بَيْنَكُمْ
“Spread salam among yourselves.”
Why was this important? Because spreading salam fosters love. On another occasion he was asked, “To whom should we give salam?” He replied:
أَطْعِمُوا الطَّعَامَ وَأَفْشُوا السَّلَامَ عَلَى مَنْ عَرَفْتَ وَمَنْ لَمْ تَعْرِفْ
“Feed others and spread salam to those you know and those you do not know.”
He ﷺ also said, as narrated by Imam al-Darimi and others:
تَهَادُوا تَحَابُّوا
“Exchange gifts among yourselves and you will love one another.”
His goal was not merely to regulate transactions but to raise them into bonds of affection, mercy, and solidarity. Whether with a business partner, a buyer, a seller, or a next-door neighbour, he ﷺ wanted to nurture brotherhood and sisterhood in society, and he succeeded.
Many of the conditions and etiquettes found in the Sunnah point towards this goal. Some of you may recall the hadith series we studied during COVID, covering around 125 narrations which I called the Social Code in Islam.
The essence of that series was to highlight how the Prophet ﷺ trained his community to live in harmony and minimise disputes.
This hadith is therefore a textbook example of how to reduce injustice and unfairness, and how to carry out our dealings without trampling on the rights of others. You want your right 100%, and you must give others their right 100%. That is justice. Do not fight only for your own right while denying the right of others.
Farming
Returning to the narration of Ibn ʿAbbas (may Allah be pleased with him), he explained that when the Prophet ﷺ arrived in Madinah he found people already practicing the salam contract, where crops were purchased in advance of the coming season. The buyer pays in advance, because the farmer often lacks cash. Farmers, even today, are not usually wealthy; governments frequently subsidise them, especially after floods or other disasters. They need capital, but do not have it. So they sell the next season’s harvest in advance, at a lower price than the expected market value, because it is not yet available. For example, one ton may be sold for £10,000 in a salam contract, while at harvest time it might sell in the market for £13,000 or £15,000. The difference becomes the buyer’s profit. The buyer pays upfront, the farmer uses the funds to sustain himself and invest in his land, and when the agreed time comes, the farmer delivers the produce, or the buyer collects it as agreed. The buyer then sells at the market rate and realises his profit. The farmer benefits because he received cash when he most needed it. This is the classic case of salam, common in wheat, barley, fruit, and similar produce.
Other produce
The salam contract is not limited to farming. It can apply to oil, olives, or any commodity not yet in existence but expected to be produced. It also applies in manufacturing. For example, in textiles: a client brings a sample and says, “I want this fabric.” The factory specifies the order, and all details must be agreed: quality, length, width, thickness. Nothing can remain vague. Once specifications are fixed, the price and delivery time are agreed. Delivery could be in ten days, two months, or a year, depending on the product and capacity.
Advance payment
In the Shariʿah this is salam: a forward sale. One of its essential conditions is that payment must be made in advance. That is the whole purpose: the farmer or manufacturer lacks capital, so he sells below the market price in exchange for immediate cash to sustain himself and fund production. This was how people dealt in the past, and even today we still deal in similar ways. For this reason, the conditions must be clear: the product and its exact specifications, the delivery time and place, and above all, that full payment is made in advance.
Islamic banking – two contracts
In modern Islamic banking and finance, there is also what is called parallel salam. A farmer approaches the Islamic bank: “I have produce to sell, but no capital.” The bank performs due diligence, reviews the farmer’s track record, and if satisfied, agrees to purchase, say, 100 tons, fixing the time and place of delivery. The bank pays the farmer upfront, for example £100,000.
Now the bank itself is not a farmer. What does it do? It enters another contract, this time with a mill or supermarket that needs wheat. The bank sells the same 100 tons, perhaps for £110,000 or £120,000, making a profit. This is called parallel salam because the same commodity is sold in two separate transactions: the bank buys 100 tons from the farmer, and sells 100 tons to the mill. The crucial point is that these must be two entirely independent contracts. The contract with the farmer is one; the contract with the mill is another. They cannot be merged. The bank then instructs the mill: on such-and-such date, at such-and-such place, collect your 100 tons from this farmer. In this way, the bank supports both sides, facilitates trade, and earns its profit.
This, in short, is salam yesterday and salam today. In conventional finance, it resembles what is called a back-to-back contract. But in Islamic terms the separation is vital: two distinct contracts, never tied together. And in both, the same rule applies: cash payment must be made in advance.
What if the banker does not have the capital and tries to structure a back-to-back arrangement, paying the farmer only after receiving payment from the mill? This is invalid in salam. One of its essential conditions is full advance payment. If the bank does not pay the farmer upfront, the contract collapses. Salam exists precisely to inject liquidity into the seller’s hands. Linking the two contracts together makes the arrangement dependent and ambiguous, which the Prophet ﷺ forbade. That is why salam and parallel salam must remain two independent, self-standing contracts.
A further example was raised from the art world: say a gallery facilitates the sale of a $50 million painting. The gallery does not have the capital, but the end buyer does. So they use escrow: the buyer deposits funds, the artwork is placed in escrow, and once both sides meet conditions, payment and title are released. Here, the gallery acts as a broker or agent, earning a commission. Sometimes capital is not financial but reputational—your network is your capital. Such arrangements can be permissible, provided they avoid riba, ambiguity, and injustice. The exact contract details must always be scrutinised.
Futures, risk and the Islamic alternative
Salam is the Islamic counterpart to what in conventional finance are called futures or forward sales. But conventional futures are plagued with ambiguity, excessive risk, and speculation akin to gambling, which makes them unjust and impermissible. Salam and istisnaʿ are the Islamic alternatives, which we will cover next.
Of course, salam still carries risk. Suppose you pay in advance for wheat, and then a drought or hurricane comes and there is no crop. Where is the protection? In such cases, Islamic finance has mitigating mechanisms. One of these is takaful insurance, based on mutual guarantee rather than interest. If the produce fails to materialise, the buyer is refunded. Yet the buyer may still say, “I gave my money six months ago and all I get back is the same amount, no goods, no profit.” That is part of the risk of salam.
This is why the contract must be priced below the market rate: the buyer accepts some risk in exchange for potential gain.
There are also varying scenarios. If there is extra rain but not total loss, the farmer may deliver less than agreed, perhaps 90 instead of 100 tons, and refund the difference. That is acceptable. But if a flood wipes out the entire crop, then force majeure applies, and the buyer is refunded in full. This is part of the balance in salam: both sides share risk, but under strict conditions that the Prophet ﷺ placed to reduce ambiguity and prevent injustice.
The Prophet ﷺ said:
مَنْ أَسْلَفَ فِي شَيْءٍ فَلْيُسْلِفْ فِي كَيْلٍ مَعْلُومٍ وَوَزْنٍ مَعْلُومٍ إِلَىٰ أَجَلٍ مَعْلُومٍ
“Whoever pays in advance (salam) for anything must do so for a specified measure, a specified weight, and a specified term.” (Sahih al-Bukhari, Sahih Muslim)
Buying off-plan
A related question arises about buying property “off-plan.” This falls not under salam but under istisnaʿ, the contract of manufacture or construction. In istisnaʿ you do not pay the entire amount in advance; rather, you can pay in instalments. The key, however, remains the same: the specifications must be clear – size, materials, delivery time -leaving no ambiguity.
Gold, silver and currency
As for salam with gold, silver, or currencies, this is not permitted. The Prophet ﷺ explicitly said:
الذَّهَبُ بِالذَّهَبِ، وَالْفِضَّةُ بِالْفِضَّةِ، وَالْبُرُّ بِالْبُرِّ، وَالشَّعِيرُ بِالشَّعِيرِ، وَالتَّمْرُ بِالتَّمْرِ، وَالْمِلْحُ بِالْمِلْحِ، مِثْلًا بِمِثْلٍ، سَوَاءً بِسَوَاءٍ، يَدًا بِيَدٍ، فَمَنْ زَادَ أَوِ ازْدَادَ فَقَدْ أَرْبَى
“Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt — like for like, equal for equal, hand to hand. Whoever adds or asks for more has engaged in riba.” (Sahih Muslim)
Therefore, salam cannot apply to gold, silver, or currencies, as these are ribawi items that must be exchanged hand-to-hand, without delay.
Crypto
What about crypto? It depends on classification. If cryptocurrency is treated as an asset, then salam may apply as with any other commodity. But if it is treated as a currency, and many scholars today lean toward recognising Bitcoin and similar as currencies, then the rules of ribawi items apply, and salam is not permitted. The debate continues, but the majority opinion is moving in the direction of crypto being a currency.
Fees
As for fees: in murabaḥah the seller must disclose cost and profit, for example, “It cost me £100 and I add £10 profit.” In other contracts, such as ijarah (leasing) or juʿalah (commission), disclosure is not always required. The ruling depends on the type of contract.
Finally, when a bank buys wheat for £100 and sells it for £110, this is not riba but trade. In riba you lend money and charge money on the money, you sell nothing, treating money itself as a commodity. Trade, however, is different: you buy a real commodity and sell it for a profit. That is legitimate gain. This is the fundamental distinction between bayʿ (trade) and riba (usury). Salam and parallel salam fall under trade: selling real goods under clear conditions, not lending money with interest.
Allah ﷻ said:
وَأَحَلَّ ٱللَّهُ ٱلۡبَيۡعَ وَحَرَّمَ ٱلرِّبَوٰاۚ
“Allah has permitted trade and prohibited riba.” (al-Baqarah 2:275)
Delivered by Shaykh Haytham Tamim to the Convert Club on 30th September 2025