SALAM (FORWARD SALE) AND

ISTISNA (MANUFACTURE
CONTRACT) IN MODERN
APPLICATIONS: A MAQASID AL-
SHARIAH PERSPECTIVE

KUALA LUMPUR INTERNATIONAL ISLAMIC STUDIES

AND CIVILIZATIONS CONFERENCE (KLILSC 2016)

DR. MOHAMMED FARID ALI AL-FIJAWI

FUNDAMENTAL AND INTERDISCIPLINARY STUDIES (FIDS), KIRKHS,
INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA, 53100 KUALA
LUMPUR
EMAIL: ABUMARIYAH@IIUM.EDU.MY, TEL: +60172447913
 THE NEED FOR MAQASID-STUDY
Nominal contracts (al-uqd al-musammt) of the Sharah are one of the
backbones of Islamic financial Institutions (IFIs). The question still remains
unanswered when asked why IFIs rely so much on nominal contracts instead of
constructing new contracts from sketch (non-nominal contracts). Is it because
nominal contracts will make their financing-products more Sharah compliant,
or because it is more convincing, or because of some other reason?
Whether we can answer these questions or not, one point is obvious and i.e.

the IFIs are not applying the nominal contracts for its traditional purposes. This
point is the primary objective of this paper. The traditional purpose was to apply
those contracts as exchange-trades (muwat).
The IFIs either with or without modifications are applying these contracts for

financing purposes. This is a great transition and requires a different type of

study to evaluate the Sharah-value of the new/modern applications of these
contracts.
Then in this transition, some nominal contracts are utilised more compared to

the others. Here again a different type of study is required to explain which
type of the contract is suitable for a specific circumstance. Applying one or two
nominal contracts for all different circumstances under the heaven will lead to
misappropriation of the contracts. The best study which can evaluate the
values of the modern applications and which can select a contract for certain
circumstance is maqsid-study.
 LIMITATION AND CALL FOR
MAQASID-STUDY
the study of the Sharah purposes of the two contracts and
the purposes of the terms and conditions of the latter two are
undertaken succinctly. There is a need to read through the
fiqh literature of various legal schools comprehensively in
order to search for other purposes of the two contracts.
Different legal schools, beside common terms and conditions
suggested surplus conditions, which can altogether give a
different insight. An important factor in reading the fiqh
literature is to relook at the arguments (Quran and Sunnah)
made by the various schools. This is because; the jurists not
only derived the legality of the contracts from the Quran and
Sunnah, but they also derived terms and conditions for the
contracts from the latter two. We have shown some instances
of this in the discussion. This approach is essential for
uncovering the Sharah purposes embedded in the two
principle sources of the Sharah.
 LIMITATION AND CALL FOR
MAQASID-STUDY
General practices of the IFIs in various countries are
taken into consideration. This means this work is
beneficial for all those countries where Muslims are
operating IFIs or any other equivalent institutions such as
cooperation, trading businesses, etc. Scholars,
consultants, advisors all can work in this line to relook at
their practices in the light of maqid Sharah. One of the
major obstacles of running IFIs irrespective of whether
Muslims are majority or minority is the conflict arising out
of peoples inclination to a certain legal school (madhab).
The maqid-study approach shows that maqid Sharah
is superior to a madhab. The concern in this approach is
the holistic message of Islam which supersedes any
school or individuals opinion. The maqid-study of fiqh-
issues can reconcile the conflicts and allow the Muslims to
work together from any corner of the world.
 WHAT IS SALAM?
WHAT IS MODERN APPLICATION?
Salam is a contract in which the
payment of the price is made in
advance, while the delivery of the
commodity is deferred.
Islamic Financial Institutions (IFIs)
apply Salam as a financing tool such
as parallel Salam, etc.
Traditional Application of Salam was
merely a exchange-contract like other
nominal contracts of the Shariah.
 ABSENCE OF GOODS IN SALE
CONTRACT IS PROHIBITED IN
SHARIAH EXCEPT SALAM.

All sales are meant to exchange benefit for an

asset in possession.
This is the masalih for people served by sale
contracts. Otherwise sale is not permitted.
Salam is exception to the rule: The Prophet
prohibited sale of goods not available with the
seller and permitted the Salam.
 WHY? = PURPOSE/OBJECTIVE
(MAQASID) OF SHARIAH
1. Realization of benefits (masalih) for the people
2. Exchanging benefits for something not in
possession.
3. Clemency (rifq) through deferment of the
delivery.
4. Tolerating minor risks for the sake of removing
hardship (mushaqqah).
5. Cheaper price for the buyer compared to spot
sale.
 SALAM AS A MEANS (WASILAH) TO
PRESERVATION OF WEALTH (HIFZ
AL-MAL)
The means to the best ends are the best means, the means to
the worst ends are the worst means (Ibn Ashur)
Preservation of wealth:

1. Marketability-Salam activates commodity market

2. Clarity-Salam through its conditions avoid uncertainty

3. Preservation-Salam encounters inflationary effects during the

period between lending the loan and its payment.
4. Durability-

5. Equity-Salam promotes just distribution becoz both parties

mutually agree on their rights without exploitation in contra to
interest based financing.
6. Development-Salam enhances production becoz the producer
is financed in advance.
. Salam is a legal means (al-wasilah al-Shari) due to its roots in

hadith.
 CONCESSION WITH REFINEMENT AND
CONDITIONS
When the Prophet migrated to Medina, the
Arab traders used to pay in advance the price of
dates to be delivered within two to three years.
The Prophet refined their contract and said to
them, Whoever signs a Salam contract for
something, should sign it for a specified measure,
specified weight and specified period (al-
Baghwiy, 2003, hadith no. 2118, p. 328).
Two conditions: One in relation to goods
(Specified measure and weight) Second in
relation to delivery (specific period)
 MEANS OF THE MEANS
(WASAIL AL-WASAIL)
Salam can only realize essential and its personal purposes of
the Shariah though the three conditions. Thus each condition
serve own set of purposes.
Specific measurement and weight in goods:

1. To avoid uncertainty in goods purchased. Uncertainty opposes

clarity
2. Risk control: Spot payment and deferred delivery is inherent of
risks such as delivery not according to specs
. Specific time of delivery:

1. To avoid uncertainty in terms of delivery time

2. To impart clemency through specific time of delivery

3. To allow production or preparation of the goods by providing

specific time of delivery
4. To maintain the risks such as delayed delivery in control
. Price paid within session: To avoid sale of debt for debt
 HUMAN PURPOSES AND
INNOVATIVE SALAM
The intent of human beings have to be in line with the
intent of the law-giver (Shari)
Salam applied as a financing tool rather than traditional

exchange-trade
Combination of Salam with Salam for financing

Combination of Salam with promise or mortgage for

security
All new forms of Salam have to maintain the purposes of

the Shariah.
Conditions based on Quran and Sunnah have to be

maintained
New conditions have to be designed to avoid credit risks,

market risk, operational risk, misappropriation of good

means etc.
 WHAT IS ISTISNA AND WHAT IS
MODERN APPLICATION?
A contract of selling a thing [which needs
manufacturing] with an undertaking by the
seller to present it manufactured from [the
sellers] own materials, with specified
descriptions and at a determined price (Mustafa
al-Zarqa)
Modern examples: Contracts for the construction
of houses, bridges, buildings, and highways.
Traditional examples, though not extinct, are
contracts for making shoes, bags, garments, etc.
Modern Application: Istisna as a financing tool,
etc.
 DO NOT SELL WHAT IS NOT WITH
YOU (HADITH)
Istisn, Ijm, Custom is the basis to
preclude.
Ibn Taymiyyah and Ibn al-Qayyim: Nothing in
the Sharah can be contrary to qiyas, thus
Istina which can be traced back to the
Prophet is a valid sale contract in its own
right. The hadith does not apply to Istina
because it does not refer to the lack of
physical possession of subject matter, but
rather to the risk (gharar) involved in such a
contract due to the possibility of non-delivery.
Al-Shaykh al-Darr argued that the non-
availability of a commodity is one thing,
while the inability to deliver is another.
 WHY? = MAQASID
Were it not for these purposes, the Istina would
have been long declared illegal. The purposes are:
1. Realisation of benefits for the people.

2. It fulfils the societal and individual needs through

manufacturing.
3. Economic wellbeing and development.

4. Creation of industries.

5. Creation of employment opportunities.

6. Stimulating trained skilled labour force.

7. Creation of facilities to generate branches of

specialised knowledge.
8. Means to other purposes of the Sharah.
MEANS TO PRESERVATION OF LIFE
AND PROTECTION OF WEALTH
The Istina since it is legalised by the
Sharah, it is a legal means to essential
purposes of the Sharah.
It protects life because through Istina
materials of food, clothing, and shelter are
produced.
Similarly, it protects property by realising the
six sub-elements namely marketability,
transparency, preservation, durability,
equity, and growth.
Serves these purposes through two
conditions: One related to product and the
other related to delivery.
 MEANS OF THE MEANS (PURPOSES
OF THE CONDITIONS)
Condition pertaining to the product ordered in Istina should be specified in
terms of quality, quantity, and particular features. The purpose behind this
condition is:
1. To assure that the product is familiar in the market (malm).
2. To assure that the product is necessary for the market and the consumers.
3. To assure familiarity with the specs of the product to avoid dispute and risks.
. Liability of defect if the product did not follow the specifications: To protect
the right of the commissioner otherwise he will be forced to defected
products.
. No option to viewing if the product followed the specifications: to protect the
manufacturers right; otherwise the commissioners would not buy the product
resulting loss of resource and energy of the manufacturer.
. In both cases, the purpose of these conditions is to protect the rights of both the
commissioner and the manufacturer. The protection of these rights is an important
element in maintaining market stability the constituent of essential purpose of the
Sharah (protection of property).
. The condition in relation to delivery of the product/project is specified time of the delivery. This
condition is also meant to serve market stability, for the latter is not possible without timely
delivery of the products. Some scholars suggested retribution in order to secure delivery on
time, such as reduction of price if the product/project is delayed.
MODERN APPLICATION OF ISTISNA
Looking at the human purposes of Istina in
our contemporary market, the contract has
taken on a totally different garb. Some of the
new applications of Istina with changes in its
traditional characteristics are:
1. A financing tool such as parallel Istina or
Istina applied as BOT contract.
2. Organisations and companies as
commissioners and manufactures.
3. Bigger projects due to changing nature of the
human needs.
4. Securing risks in contemporary Istina with
bonds, mortgages, and guaranties.
 CHALLENGES
The challenge of IFIs is to maintain the purposes served by the
traditional Istina and develop it into a contract which can
cater the contemporary market and consumer needs.
Another challenge for IFIs is to become real manufacturers

meaning to become owners and dealers of real assets

(factories etc.). To be facilitators on paper will not realise the
real purposes of the contract.
We also saw that in traditional Istina, the risks are controlled

by the terms and conditions stipulated with the product and

the time of delivery. In the case of products, the conditions are
meant to assure that a product is really needed and producible.
Contemporary organisations or IFIs can add a new condition or
modify the previous conditions as far as these conditions can
serve the same purpose. Modern technology is capable to
visualise or stimulate a product before its real production. It
can assure that a product is not speculative. Similarly, new
conditions can be designed to secure timely delivery.