In this learning unit, we will understand the Bai Salam product & the workflow

involved.
The Course Objective is to equip participants with adequate knowledge on the Bai
Salam finance product.
 Bai Salam is a contract in which advance payment is made for goods to be delivered
at a future date. The seller undertakes to supply some specific goods to the buyer at a
future against price fully paid in advance, at the start time of contract. It is necessary
that the quality of the commodity intended to be purchased is fully specified leaving
no ambiguity leading to dispute.
The term Bai-Salam has been derived from Arabic words (Baiun and Salamun). The
word means purchase and sale.

Bai-Salam means advance purchase and sale. Generally, Agricultural products are
purchased/ sold in advance under Bai-Salam mode of Investment to infuse finance so
that production is not hindered due to shortage of fund/cash. Salam addresses two
important aspects of liquidity for the producer and protection of the rights of the
buyer.

This is one mode of investment allowed by Islamic Shariah in which commodity is

sold without existence or physical/constructive possession of the seller. If the
commodity is ready for sale, Bai-Salam, cannot be the mode if investment. In such
cases the sale may be either as Bai-Murabaha or Bai-Muajjal which is spot sale or
deferred sale.

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 Salam cannot be affected on a particular commodity or on a product of a particular
field or farm.
The exact date and place of delivery must be specified in the contract. Salam
agreement covers the Quantity, Quality and Workmanship.

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 Bai Salam workflow is described in this slide.

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 In case the Bai Salam contract is required for a quantified assets (eg., agricultural
produce etc.) the asset details can be specified straight away during the Asset
Request stage where the commodity can be selected from the dropdown (the values
in this field are fetched from IS.COMMODITY table)
The commodity details, with Units, unit price , quantity , customer, currency, vendor
to be mentioned here.
Status is shown as Advance.Purchase as per parameter setting (IS.PARAMETER).

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 Additional cost if any can be included to the contract.
Cost Payment type can either be contract or vendor, which means that the cost
payment is to be paid by the client or the bank. (Cost cannot be added to finance, as
the product needs to be tracked for delivery of asset which can be in full or partial).
Action tasks if any can be maintained.

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 Accounting entries are generated at Advance.Purchase status as shown here.

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 Having entered into a Bai Salam agreement and the details of the Asset/commodity
specified, the next step is to make payment to the vendor who is the producer of the
commodity.

Generally, Adhoc payment to vendor or FT payments or cash payments ( TT payments

) are done. The producer upon receipt of finance shall get started with the production
of the asset.

The retention percentage is ideally set to zero or null.

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 Accounting entry is raised by debiting Multisupplier account & crediting the vendor
account.

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 The producer of the commodity shall deliver on the stipulated date which is captured
as Delivery of asset where the delivered quantity is captured.
The delivered quantity can be in full or can be delivered in parts. The delivered
quantity units is recorded with the delivery date. The details of the asset requested ,
delivered and Sold is maintained as part of Inventory management.

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 If quantity is delivered in parts, delivery tracking of assets will show the quantity
delivered & quantity that is pending delivery.

Below Accounting entries are generated during Commodity delivery :

DR Purchase Order Bai Salam
CR Goods in Transit Bai Salam

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 Once the asset is in possession, the next step is the sale of the asset.
The asset held by the bank can be sold to different customers, hence the commodity
sale details are captured before the actual sale of asset using AA.
Details such as purchase reference, sale unit price & sale quantity are to be input.
The net profit/loss amount is calculated and accounted by the system based on the
purchase price & sale price.

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 Sale of asset to customers are done in AA .
The details such as customer , currency , IS.Product & the IS.CONTRACT.REF are to be
input.
Commodity Sale ref. to be included which will default the commitment amount.
Details such as Term or maturity date, Profit amt. or percentage, payment schedules
are defined here for the sale.

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 In this workshop, we will open a Bai Salam contract with the details as per slide.

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 Asset details are captured in the asset request stage as Rice is a quantifiable asset.
Customer id, account number, IS Product, dates, commodity, units, unit price,
purchase quantity, vendor details are to be input here.

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 This slide shows the steps to authorise the captured/requested asset.

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 Next step is to make payment to vendor.

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 Vendor payment to be authorised as shown.

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 Next step is delivery of commodity to bank. As per workshop, we have 2 commodity
deliveries for 100 units & 250 units individually.
In this slide the 1st 100 units delivered is captured & authorised.

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 Here, the next 250 units of asset delivered is recorded & authorised.

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 The next step is asset sale request. The received units of 350 is now ready to be sold
to another customer 98765, which is initially recorded.
As per workshop, sale quantity is 350 with unit price 170.00 .
Hence the net profit is 7000.

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 Authorisation of Commodity sale request is shown in this slide.

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 Sale of asset to customer is done in AA. The following slides explain the navigation in
AA.
Sale to customer 98765 is made for the 350 units. Customer, Commodity Sale ref.
,currency, date and IS.Product to be input.

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 Commitment amount is defaulted by the system (based on commodity sale request),
other details like maturity date or term needs to input here.
The profit percentage or amount is also to be specified. System shows the AA account
number created under Account tab.

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 As per workshop, a Linear payment schedule is defined here.

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 Navigation to authorise the Sale is shown here.

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 Upon authorisation, the status of the finance would show Current

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 This slide shows the Linear Payment schedule generated & accounting entries at
Advance.Purchase status and commodity delivery stage.

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 Accounting entries for Sale.

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In the learning unit, we understood the Bai Salam finance product & its workflow.