International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 2 (2016) pp 909-916

© Research India Publications. http://www.ripublication.com

New Approach to Model Salam Contract for Profit and Loss Sharing

A. Dchieche
Ph.D. Student, Islamic Finance Engineering Laboratory,
Laboratoire d'étude et de recherche en Mathématiques appliquées,
Mohammadia School of Engineering, Mohammed V University, Rabat, Morocco.
E-mail:amina.dchieche@gmail.com

R. Aboulaich
Professor, Islamic Finance Engineering Laboratory,
Laboratoire d'étude et de recherche en Mathématiques appliquées,
Mohammadia School of Engineering, Mohammed V University, Rabat, Morocco.
E-mail: aboulaich@emi.ac.ma

Abstract There are many Islamic contracts designed for hedging as

Salam is a contract in which advance payment is made for goods
to be delivered at a future date. Profit and loss sharing suggests an
equitable sharing of risks and profits between the parts involved
in a financial transaction. This principle can avoid unlimited risk
and unknown loss from which are suffering many conventional
contracts. The purpose of this work is to propose a new approach
to model Salam contract. The goal is to avoid unlimited risk and
unknown loss using the dynamic rate of return [1] and the
expression of participating contingent premium options [2]. The
proposed formulation uses the Salam contract and introduces the
principle of profit and loss sharing in Khiyar Al Ghabn which is
an agreement of choice in case of misrepresent facts.
Keywords: Islamic Finance, Shariah Compliance, Profit and loss
sharing, Derivatives, risks, hedging, Salam contract
Introduction
In all financial transactions risk is always present. In Islamic
finance this issue has far bigger because Gharar1 meaning the
unknown is not allowed and all Islamic transactions are required
to minimize risk [22].
To reach this objective we presented in the article [1] Waad Bil
Mourabaha as Shariah Compliant alternative to the Call option
but the risk of the seller stayed unlimited. We also proposed a
modelization of the dynamic rate of retun of the good which we
will use in the following sections.
We also succeed in the article [2] about Participating Contingent
Premium Options to avoid unlimited risk for the seller using the
principle of profit and loss Sharing, but the execution of the
contract stays under the control of the buyer.
According to [5], [6] and [7] the risk in Islamic Finance must be
tolerable it means it is inevitable, insignificant and unintentional.
If the execution of the contract is under the control of one of the
parts the loss can be caused to the other intentionally. This issue
is resolved by the payment of the premium. Several other studies
about risk and hedging in Islamic finance have been made [20],
[21], [24] and [25] but most of them kept the premium.
Salam, Bai Bil Ajal2, Istisnaa3, Joala4, Istijrar5... In this work
we propose a new approach to improve the Salam contract
via the principle of profit and loss sharing.
Salam is a contract for deferred delivery that was originally
sanctioned during the time of the Prophet, peace be upon
him, to facilitate the trading activities of farmers who were
awaiting the harvest of crops. In more modern times it has
also been applied to the production of raw materials and
fungible goods in general.
In Sudan Salam contract was used in the field of agriculture,
this is a contract that has been very successful but that has
experienced the stress of the price variation. Despite the fact
is that the prices of goods sold by the Salam contract are set
by the state price but changes due left disgruntled farmers.
In order to avoid these problems many solutions have been
proposed by Sudan's bank [4], [12] and [29].
If prices change much and farmers felt injustice the bank can
negociate the difference of price. If this additional amount
didn't satisfy farmers the Salam contract can be cancelled and
the good returned back to be sold on the market.
The latter possibility can be considered as khiyar Shart which
is an option that constitutes a condition stipulated in the
contract, this option confers on the parties to the contract the
right to proceed with contract by confirming it or to cancel it
all within a preagreed period of time. The use of khiyar Shart
is controversial by Shariah6 in the Salam contract.
In our study we will learn from the experience of Sudan to
Model modified Salam Contract. The additional amount will
be calculated using the principle of profit and loss sharing
and the payement will be based on Khiyar Al Ghabn [4].
2 A contract that refers to the sale and purchase transaction for the financing
of an asset on a deferred and an instalment basis with a pre-agreed payment
period.
3 A purchase contract of an asset whereby a buyer will place an order to
purchase the asset which will be delivered in the future.
4 Is essentially a Istisnaa but applicable for services as opposed to a
manufactured product.
5 A contract between a client and a supplier, whereby the supplier agrees to

supply a particular product on an ongoing basis, for example monthly, at an

1An Islamic finance term describing a risky or hazardous sale, where details agreed price and on the basis of an agreed mode of payment.
concerning the sale item are unknown or uncertain. 6 Islamic law

909
 International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 2 (2016) pp 909-916
© Research India Publications. http://www.ripublication.com
The price of the good will be paid at the beginning according to
an agreed interval of price's variation and the share of profit and
loss will be done at maturity.
The contract is automatically cancelled if the price of the good at
the maturity is outside the agreed interval.
Since the cancellation of Salam contract under a choice is seen as
Khiyar Al Shart which is contraversial by Shariah we will
propose two possibilities the first permits the cancellation and the
second permits to avoid it.
The remainder of this paper is as follows: the next section
introduces Salam contract; Section three includes the new
approach to Salam contract; Section four presents the simulation
results; Section five explains the second case of the model in
which the cancellation is avoided; and section six summarizes the
finding and concludes.
Salam Contract
In the scientific literature the Salam Contract can be defined by
many ways.According to [30] literally the word ``Salam'' is
synonymous to the word ``Salaf'' which's means the lending. To
make Salam is to lend something to somebody.
A Salam transaction is so called because the price is to be paid
when the concerned parties sit togeter to conclude the contract.
According to [9] Salam is a contract where two parties enter into
a contract of sale of goods which would be delivered in future for
which the price for the goods would be paid in cash on spot at the
time of the signing of the contract. Means that it is a kind of sale
in which payment is spot while the delivery of the good is
deferred. It is also known as Bay Salaf or Bay Mafalis. And
according to [13] Salam is a sale whereby the seller undertakes to
supply some specific goods to the buyer at a future date in
exchange of an advanced price fully paid at spot. The buyer is
called ``Rab Al Salam'', the seller is ``Muslam ilaih'', the cash
price is ``Ras al mal'' and the purchased commodity is termed as
``Muslam fih''.
The Salam Contract can be also seen as an analogous contract to
derivatives like sales, as represented in article [15]. Where
authors define the Salam Contract as prepaid forward sale.
A. Salam Contract Shariah point of vue
Salam Contract is approved by the Quran7, the Hadith8 and the
Ijmaa9: According to article [16] lbnu Abbas 10 commented that:
``I bears the witness that al Salaf (Al Salam) stipulated for a
stated term had been made legal by Allah in His holy book and
His permission is in it''. He then recites Ayah11 282 of Surah12 Al
Baqara.
The Prophet said, ``Whoever pays money in advance for dates (to
be delivered later) should pay it for known specified weight and
measure (of the dates)''.
Article [8] explains the agreement of the four Madhahib13 about
the Salam contract and resumes their perception of the
application of the contract.
7
The central religious text of Islam.
8 The collections of the reports of the teachings, deeds and sayings of the Islamic
prophet Muhammad.
9 An Arabic term referring to the consensus or agreement of the Muslim
community basically on religious issues of schools.
10 One of prophet's Muhammad companions and one of the early Quran scholars.
11 Verse
12 Chapter
13 Schools of Islamic law: Maliki, Hanafi, Hanbali, Chafii.
910
The ``Malikis'' define salam as the sale of something owned
and specified by description in exchange for a price, the
delivery of the thing being put off for a time they permit
postponement of the transfer of the price to the buyer for a
period of no more than three days.
The ``Hanafis'' have the same definition of the ``Malikis'' but
they are strict about the precise specification of the price and
its being received by the seller there and then not the time of
contract. The ``Hanbalis'' see salam as that which is handed
over in exchange for something defined that is owed for a
known period. The ``Shafiis'' define it as the selling of
something that is specified and owned.
B. Conditions of Salam Contract
According to articles [27], [13] and [9] we resume Salam's
Contract conditions by:
- Full price should be paid to the seller at the time of
effecting the sale.
- Quality and quantity of the commodities should be
specified exactly.
- All the details of the products must be expressly
mentioned.
- Quantity of the commodity is agreed upon in
unequivocal terms.
- The exact date and place of delivery must be
specified in the contract.
- Salam cannot be effected in respect of things which
must be delivered at spot.
- Salam contract cannot be revoked unilaterally by
any party. It can be cancelled or partially cancelled
with mutual consent by returning the actual or
proportionate amount of price paid. In case of
Default no penalty can be stipulated in the contract.
C. Difference between Salam sale and ordinary sale
According to article [9], author presents five differences
between Salam sale and ordinary sale:
1- In Salam sale it is necessary to precisely fix a period
for the delivery of goods which may not be in
ordinary sale .
2- In Salam sale the commodity which is not in
possession of the seller can be sold which is
impossible in ordinary sale.
3- In Salam sale only those commodities which can be
precisely determined in terms of quality and
quantity can be sold, in ordinary sale everything that
can be owned is salable, unless the Quran or the
Hadith prohibit it.
4- A Salam sale cannot take place between identical
goods at the opposite of ordinary sale in which it is
permissible.
5- In Salam sale advance payment should be made at
the time of making the contract, in ordinary sale
payment may be deferred or may be made at the
time of the delivery of goods.
D. Advantages and risks of Salam Contract
According to articles [26] and [19], the seller undertakes to
supply specific goods to the buyer at a future date in
exchange of an advanced price fully paid at spot. The price is
 International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 2 (2016) pp 909-916
© Research India Publications. http://www.ripublication.com
paid immediately in cash but the supply of purchased goods is
deferred to a fixed date.
The seller gets in advance the money he wants in exchange of his
obligation to deliver the commodity later.
He benefits from the Salam sale by covering his financial needs
whether these are personal expenses or expenses for productive or
trading activity.
The purchaser gets the commodity it is planning to trade on the
time it decides.
The purchaser will also benefit from the cheap prices because
usually the Salam sale is cheaper than the cash sale, this way the
purchaser will also be secured against the fluctuations of price.
In Salam contract there is a possibility of Al-Ghabn: in Arabic
means loss. What it really signifies is to sell something of one's
own on less than its due price, or to buy something on double or
triple its price. In both cases one is a loser. When a person comes
to know about such a loss he repents and feels sorry for it.
According to [23] the issue of Al-Ghabn can be resolved by
Khiyar14 Al Ghabn which confers on either party to a
commutative contract the right to remove the injustice arising
from Al Ghabn by voiding the contract totally or partially.
In this work we will use Khiyar Al Ghabn in order to permit
profit and loss sharing.
New aproach to model Salam Contract for profit and
loss sharing
In the next section we present the new approach to model Salam
contract.
First we give the expression of the capitalization and the reduced
price of the good.
Then we remind the formula of the profit and loss sharing of our
previous work to calculate the expression of profit and loss
sharing of the Salam contract.
And finally we present the interval of the execution of the
contract.
In this study we will use the following data:
T: the time variable
S0 : the price of good at t=0
St : the price of good at maturity T=t
t : the maturity
R : the dynamic rate per period of return of good
r : the cumulative rate of reduction for the time of maturity
PF : the expected future price of good calculated using the
formula of actualization
Pr : the reduced price of the good
δ : the variation of the price of good
ρ : the percentage of the variation of the price of good
P' : the amount to be exchanged according to the principle of
profit and loss sharing
p : the percentage of tolerance of price's variation
[IEC] : the interval of execution of the contract
β : function that takes 0 or 1
P{ms} : Modified Salam contract
A. The future and the reduced price of good
Using the classical formula of actualization represented in article
[10], the formula of the future price of the good PF is given by:
PF = S0 * (1 + R) ^ t (1)
14 Option
911
It represents the expected value of the good at maturity.
According to articles [3], [18], [26] and [28] the price of the
Salam must include a reduction since the whole amount is
paid spot at the beginning.
To apply this condition we use the rate of reduction r and
equation (1) to give the formula of the reduced price of the
good:
P r = PF * (1 - r) (2)
Pr is the price paid by the buyer at the time of signing the
contract to receive the good at maturity.
B. Khiyar Al Ghabn
The price of the good at maturity is not controlled, it can
fluctuate much causing loss for each part of the Salam
contract.
According to the article [19] this loss can be seen as Ghabn
or Ghobn15 where one of the parties mind that the price paid
is not adequat. In this case it can be possible to avoid the
Ghabn by an agreed amount, which can be difficul and can
occasion conflict. The other possibility is to add in the
considered contract a stipulation of Khiyar16 al Ghabn.
Khiyar Al Ghabn includes the payment of an additional
amount considering the experience of Sudan it can also
include the cancellation of the contract, this solution is seen
as Khiyar Al Shart.
In the following we propose a modeling of Khiyar Al Ghabn
based on the principle of profit and loss sharing.
i. Principle of profit and loss Sharing
In the article [2] we modeled the Participating Contingent
Premium Option (PCPO) which is based on profit and loss
sharing. In the following we remind the expression of some
equations used in that work.
P'{pcpo} is the amount that will be paid by the buyer under
respecting principles of profit and loss sharing:
P'{pcpo}= {pcpo}*  {pcpo} (3)
Where δ{pcpo} is the variation of the price of good between
the expected price of the good at maturity P{pcpo}, and the
real price of the good at maturity St, given by:
 {pcpo}= St - P{pcpo}
(4)
And ρ{pcpo} is the percentage of the variation:
| St - P{pcpo}|
{pcpo}=
P{pcpo} (5)
We notice the use of only positive values. We considered that
the amout P'{pcpo} is only paid by the buyer because he has
the control on the execution of the contract.
In this work we assume that the buyer and the seller have the
same control on the execution of the contract and we will
consider the possibility of exchanging money.
15 Arabic word meaning literally to do wrong, cheat or misrepresent facts,
resulting in injustice and possibly substantial deviation from market price.
16 Choice
 International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 2 (2016) pp 909-916
© Research India Publications. http://www.ripublication.com

To permit this possibility we use the equation (4) of the variation C. Model of modified Salam for profit and loss sharing
of price of good, we remove the absolute value and we substitute Using equations (1), (8) and (9) we define modified Salam
the price of purchase of good P{pcpo} by the reduced price of the price contract:
good Pr. The expression of the variation becomes: P{ms} =  {[IEC]}* [ Pr + P'{[IEC]} ] (10)
If at maturity the price of the good fluctuated outside the
 = St - Pr (6) interval [IEC] the parameter β{[IEC]} takes the value 0 and
the contract is automatically cancelled.
Pr is the reduced price of the good calculated at T=0 and paid at In that case we can calculate the modified Salam price
the time of signing the contract to receive the agreed quantity of contract P{ms} = 0, there is no payment for the cancelling.
good according to the classical Salam contract. If the price of the good at maturity is inside the interval [IEC]
St is the price of the good at maturity. the parameter β{[IEC]} takes the value 1 the additional
The expression of δ explains the difference between Salam sale amount P' is calculated according to the price of the good at
and ordinary sale. maturity St, and the good is delivered.
In the Salam sale the price Pr is paid at T=0 to receive the good at
maturity. D. Execution of the contract
In the ordinary sale the buyer pays the price St and receives the i. Steps :
good at the same time. The steps of execution of the profit and loss sharing contract
For the seller the expression of δ permit to quantify the are as follow:
difference of gain between the Salam and the ordinary sale. - At t=0 the buyer pays to the seller the future reduced
Using the equation (5) we subsitute the price of purchase of good price of the good Pr, and they agreed on the tolerance
P {pcpo} by the reduced price of good P r, to give the expression of price's variation p.
of the percentage of the variation of the price: - At the maturity
 case1: St is outside the interval of execution of the
 = {| S t - P r |}/{Pr} (7) contract [IEC], the seller returns back Pr to the
buyer, and the contract is cancelled.
Using equations (3), (6) and (7), we give the expression of the P'  case2: St is inside the interval of execution of the
the amount to be exchanged according to the principle of profit contract [IEC]. The contract is executed, the seller
and loss sharing: delivers the good to the buyer, and the amounts of
P' =  *  (8)
profit and loss sharing are exchanged according to
these next three possibilities:
o If Pr = St , P' is null, the expected future
The amount P' is paid by the buyer at maturity, if the price of the
reduced price of the good Pr is equal to the real
good is inside the agreed interval.
price of the good ST. There is no amount
This quantity can be positive, negative, or null, if it is positive the
exchanging.
seller receives the amount from the buyer, if it is negative the
o
buyer receives the amount from the seller, and if it is null no
If Pr > St, P' is negative, the seller pays the
amount is exchanged.
amount to the buyer.
o If Pr < St, P' is positive, the buyer pays the
ii. Determination of the interval of execution of the contract
amount to the seller.
In the article [2] the interval of the execution of the contract is
determined by maximizing the profit of the buyer and minimizing
ii. Table of Profit and Loss :
his loss.
If at maturity the prices don't permit to the buyer to make profit
Table 1: Profit and loss of Modified Salam contract
the contract is cancelled. The interval is controlled by the buyer.
In this work we are interested in profit and loss sharing equally PL of the PL of the
between the buyer and the seller, both parts controls the execution Cases Value underlying asset buyer seller
of the contract.
According to the article [14] the cancelling of the Salam contract Case1 S t < Pr *(1-p) 0 0
can be possible only if both parts agreed. Case2 P r* (1-p) <= S t < Pr Pr - St < 0 St - Pr > 0
To express this idea we introduce the percentage of tolerance of Case3 St = Pr Pr - St = 0 St - Pr =0
price's variation p which is determined by the agreement at the Case4 P r < St <= Pr*(1-p) Pr - St > 0 St - Pr < 0
beginning. Case5 St > Pr *(1+p) 0 0
The interval of execution of the contract can be given as
following:

[IEC] = [Pr * (1 - p1) ; Pr * (1 + p2)] (9) Numerical results

Where p1 is the tolerance rate of the lower bound and p2 is the In the following examples we consider the price of good at
tolerance of the upper bound. t=0 is S 0 = 100 DH and the maturity is t = 3 years. The
In the following we consider p1 = p2 = p. parameters PF, Pr, δ, ρ, P', and P{ms} are calculated

912
 International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 2 (2016) pp 909-916
© Research India Publications. http://www.ripublication.com

respectively using the equations (1), (2), (6), (7), (8) and (10), and iii. Example3: St = 115 DH
the interval [IEC] is calculated using the equation (9). Table 4: S t > Pr the difference will be paid by the buyer as
case2 in the second example
A. Variation of the maturity St
The percentage of the tolerance p = 10 %. Parameters Case1(R1) Case2(R2)
The percentage of reduction is the Moroccan inflation rate
r=0,017, we consider that this rate is constant between T=0 and PF 109,814 113,6912
T=t. We will propose two possibilities of computation of the rate Pr 107,9422 111,7585
of return. [IEC] [97,1480;118,7364] [100,5826;122,9343]
δ 7,0577 3,2414
Case 1: The rate of return is calculated using the modified Black Ρ 0,0653 0,0290
and Scholes Model represented in Article[1], with the volatility P’ 0,4615 0,094
sigma = 0,3. We obtain R 1 = 0,0317. P{ms} 108,4037 111,8525

Case 2: The net rate of return of the Islamic Central Bank of

Malaysia according to the Framework of Rate of Return[17], R 2
= 0,0437.
The rate of return can also be computed using chronological
series as in [11].
iv. Example4: St = 150 DH
The price of good at maturity St is outside the interval of
execution of the contract, the contract is cancelled and the
seller pays back the reduced price of the good Pr.

i. Example1: St = 100 DH

Table 2: St < Pr the difference will be paid by the seller.

Parameters Case1(R1) Case2(R2)

PF 109,8014 113,6912
Pr 107,9422 111,7585
[IEC] [97,1480;118,7364] [100,5826;122,9343]
δ -7,9422 -11,7585
Ρ 0,0735 0,105 Figure 1: Profit of the buyer
P’ -0,5844 -1,2372
P{ms} 107,3579 110,5213

ii. Example2: St = Pr = 107,9422 DH

Table 3: St > P r the difference will be paid by the buyer, but in

Case1 St = Pr there is no profit and loss sharing amount
exchanged

Parameters Case1(R1) Case2(R2)

Figure 2: Profit of the seller
PF 109,814 113,6912
Pr 107,9422 111,7585
[IEC] [97,1480;118,7364] [100,5826;122,9343]
δ 0 -3,8163
Ρ 0 0,0341
P’ 0 -0,1303
P{ms} Pr = 107,9422 111,6242

Figure 3: Intersection of buyer’s and seller’s Profit

913
 International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 2 (2016) pp 909-916
© Research India Publications. http://www.ripublication.com

Figure1 presents the variation of buyer's profit according to the

price of the good at maturity.

Figure2 presents the variation of seller's profit according to the

price of the good at maturity.

Figure3 presents the intersection of variation of buyer's and

seller's profit according to the price of the good at maturity.

We notice that there is an equal possibility of gain and loss

resulted by the using of the principle of profit and loss sharing, no
one of the parts of the contract controls the execution.
Figure 4: Profit of the buyer according to different
B. Variation of the percentage p
possibilities of tolerance rate
In the following we consider that:
In Figure4 the profit of the buyer can fluctuate according to
The maturity is t = 3 years. The price of good at t=0 is S 0 =
the tolerance rate, the more this rate is significant the more
100DH.
the profit and the loss are important.
We choose the rate of return given in article [1], calculated using
C. Comparison between Salam and modified Salam
the modified Black and Scholes model, considering the volatility
sigma = 0,3.

We calculate the future price of the good P F = 109,809 DH using

the equation (1)and the reduced price of good P r = 107,9422
using equation (2), p 1, p 2 and p 3 percentages of tolerance of
price's variation, Pr b is the profit of the buyer and Pr s the profit
of the seller.

Table 5: Table of results

Figure 5: Intersection of buyer's profit in Salam and

modified Salam

Figure 6: Intersection of seller's profit in Salam and modified

Salam

We use Figure5 and Figure6 to explain the difference

between Salam and modified Salam.
In the Salam the profit of the buyer and the seller is
unlimited. In the modified Salam this profit is limited by the
interval of the execution of the contract.
The intersection of those two contracts shows that the profit
deasn't change in the same interval of price's variation.

914
 International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 2 (2016) pp 909-916
© Research India Publications. http://www.ripublication.com
Modified Salam Contract Extension
The model of modified Salam contract includes two possibilities:
the exchange of the good and the money if the price of the good at
maturity is inside the interval of the execution of the contract, or
in the opposite case the cancellation of the transaction without
any fees.
In this section we propose an extension of the previous model
supposing that the price of the good at maturity is separated into
three intervals: [IEC] the interval of the execution of the contract,
[Up] includes the values strictly superior to the values in [IEC],
and [Down] includes the values strictly inferior to the values in
[IEC].This approach permits to limit the price of the purchase of
the good without the possibility of the cancellation of the
transaction, which can avoid the using of khiar Al Shart. The
model of extended modified Salam can be defined using the
equation:
P{ms'} =  {[IEC]} * [ Pr + P'{[IEC]} ] +  {[Up]}* (11)
[ Pr + P'{Pr * (1 + p)}] +  {[Down]}* [ Pr + P'{Pr * (1 - p)}]
P'{[IEC]} is all the values of profit and loss sharing when the
price of the good at maturity is in the interval of the execution of
the contract [IEC].
P'{Pr * (1 + p)} is the value of the profit and loss sharing of the
superior border of the interval of the execution of the contract
[IEC].
P'{Pr * (1 - p)} is the value of the profit and loss sharing of the
inferior border of the interval of the execution of the contract
[IEC].
If the price of the good at maturity is in the interval [IEC] the
profit and the loss are shared using the previous equations.
Elsewhere the price of the purchase of the good is fixed whatever
is the variation, meaning in the intervals [Up] and [Down] the
price to be paid is respectively
P_ r + P'_ {P_ r * (1 + p)} and P_ r + P'_ {P_ r * (1 - p)}.
Conclusion
The traditional Salam contract permits the purchase of the good in
a future time with an advance reduced payement.
The price and the quantity of the good are fixed at the beginning.
If at maturity the price of the good fluctuates the agreed price
can't be modified which can cause loss for one part of contracting.
In this work we propose two propositions of new approach to
price Salam contract in which we use the principle of profit and
loss sharing.
In the first proposition as in traditional Salam contract the price
and the quantity of the good are fixed at the beginning, and we
add the possibility of Khiyar Al Ghabn calculated using the profit
and loss sharing to limit the loss of both parts of the contract. We
introduce also the interval of the execution of the contract which
is an agreed interval of price's variation, if the agreed price of the
good is outside this interval the contract is canceled.
The use of Al Khiyar in Salam contract is controversial by
Shariah, in the second proposition we model an extended model
which permits to avoid the cancellation of the contract.
915
To improve this work we are modeling Value Based Salam
contract.
References
[1] Aboulaich, Dchieche, ``Pricing of Waad Bil
Mourabaha'', Asian journal of applied sciences,Vol
3, No 3, 2015.
[2] Aboulaich, Dchieche, ``Participating Contingent
Premium Option'', Review of Pacific Basin
Financial Markets and Policies, 2015.
[3] Ahmed, Abu Ghuddah, ``Shariah Opinion (Fatwa)
On Istisna, Contracting & Salam'', Al-Baraka
Banking Group Department of Research and
Development, 2007.
[4] Ahmed, Fatwa No 7/2006, ``The basis on which it
was based remove injustice in Salam'', Secretary
General of the Supreme Commission for Sharia Of
the banking system and financial institutions of the
Republic of Sudan, 2006.
[5] Al-Suwailem, ``Hedging in Islamic Finance'',
occasional paper N10, edited by IRTI, IDB, 2006.
[6] Al-Suwailem, ``Islamic approach to risk'', Adopted
from sections 4 and 5 of the author's paper: Hedging
in Islamic Finance, edited by IRTI, IDB, 2011.
[7] Al-Suwailem, ``Hedge controls on financial
transactions'' (Arabic), Research presented to the
Islamic Fiqh Academy, 21 session Saudi Arabia
Riyadh, 2013.
[8] Al Zaabi, ``Salam Contract in Islamic Law: A
Survey'', Review of Islamic Economics, Vol 14, No
2, 2010.
[9] Asif, ``Salam as a mode of financing'', Marshall
Ketchum University, 2003.
[10] Bachelet, ``L'actualisation'', Centrale Lile, 2014.
[11] Beng, Ming-Hua, ``Islamic banking: Interest-free or
interest-based'', Pacific-Basin Finance Journal, Vol
17, No1 2009.
[12] Civil Transactions Law, ``Chapter V, Some types of
sales, Salam'' (arabic), The Ministry of Justice of the
Republic of Sudan, 1984.COMSATS Institute of
[13] Information Technology, ``Lecture 13: Salam &
Istisna'', Monetary and Fiscal Framework in Islamic
Finance, 2013.
[14] Council of the Islamic Fiqh Academy, ``third
Resolution: dissolution of debt in religion'' (arabic),
Eighteenth Session, 2006.
[15] El-Gamal, ``Islamic Finance: Law, Economics, and
Practice'', page 81, Cambridge University Press,
2006.
[16] Emkay, Uitm, Khalid, ``Bay Al Salam'', University
MARA of technology, 2012.
[17] Framework of Rate of Return, Central Bank of
Malaysia, 2013
[18] Ghait, ``Theory decisive time and its impact on
Islamic Economics'' (arabic), proposed plan for a
doctoral degree in economics and Islamic banks
Introduction to the Department of Economics and
Islamic banks, College of Sharia and Islamic Studies
 International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 2 (2016) pp 909-916
© Research India Publications. http://www.ripublication.com

Islamic economy and banking department, Yarmouk

University, 2005.
[19] Jabr, ``Operations and accounting treatment on Salam
contract'' (arabic), Forum Khartoum of financial
industry, sixth edition, 2014.
[20] Kat, ``Contingent Premium Option'', The Journal of
deratives 1994.
[21] Klein, Les Sukuk optionnels, Sukuk A remboursement
anticipe, convertibles et echangeables, les cahiers de la
Finance Islamique No7, 2014.
[22] Martens, ``La Finance Islamique: Fondements, theorie et
realite'', l'actualite economique, Vol 77, No 4, 2001.
[23] Omar, Arifin, Mohdnapiah, Abdullah, ``The Implications
of Ghubn in Islamic Contracts: An Analysis Of Current
Practices'', Journal of Applied Sciences Research, Vol 7,
No 13, 2011.
[24] Obaidullah, ``Financial Engineering with Islamic
Option'', 1998.
[25] Redha, ``The concept of time in Islamic
Economics''(Arabic), Research paper N10, edited by
IRTI, IDB, 2000.
[26] Said, Ahmad, Javaid, ``Handbook on Islamic SME
Financing'', Islamic Banking Department State Bank of
Pakistan, 2007.
[27] Sayyid, ``Alternative Structures for Financing by Islamic
Banks'', IRTI Working Paper Series, 2013.
[28] Shehata, ``Foundations and accounting systems on the
sale of Salam and parallel peace as in Islamic banks''
(arabic), A series of studies and research In Islamic
accounting thought, 2007.
[29] Tijani, ``Salam legitimate alternative to bank financing
contemporary ( Financial and investment look )''
(arabic), Version II, The initial edition, The Ministry of
Finance and National Economy Supreme Advisory
Committee of government instruments, the Republic of
Sudan, 2006.
[30] Umar, ``shariah economic and accounting framework of
bay al Salam in the light of contemporary application'',
Research paper N33, edited by IRTI, IDB, 2006.

916