Introduction of Sharia and Legal Issues in Salam Contract Bank

        The Islamic banking follows Islamic law and Shariah framework. The Sunni school school of Islamic law monitor the activities of the Islamic banks so that the banking activities can be performed according to Islamic principles. Many financial instruments that the Islamic banks used include Mudarabah, Murabahah and Musharakah. These financial instruments are well known and understood by a lot of people. However the lesser known Islamic bank instrument is the Salam Contract. The terms and conditions of the Salam banks are not understood by many and through this several questions arises which need to be answered. This paper will try to provide deep insights regarding the Salam contract and all the issues which occur in Salam Contract whether Shariah or economics related will be evaluated in detail.

        The paper will discuss the Salam Contract through conducting empirical study of Noor Islamic Bank which is a major Islamic Bank in the Arab Region. The research paper is divided into four main sections. The first section is the introductory section and discuss the issue in detail. The second section contains the literature review which will provide brief overview regarding the issue and how it can be resolved. The findings sections provide the results of the research. In the last section the study will be concluded and recommendation will be provided to resolve the issues related to Salam Contract.

Problem Statement of Sharia and Legal Issues in Salam Contract Bank

        In order to identify the legal and Shariah issues in Salam Contract it is important to understand what is Salam contract and how it works. Salam Contract can be considered as a forward transaction in which the customer pay for the goods in advance and the seller will deliver the goods in some future date. Salam contract is like debt because the goods are liability for the seller up to the date on which it will deliver the goods to the Seller. Salam Contract deals with goods which does not exist in reality therefore Shariah law states that strict regulations must be implemented in Salam Contract so that no party would face loss and rights of both the parties remain protected.

        However there are some Shariah & legal Issues in Salam Contract which should be consider while making Salam contracts. In Shariah selling goods purchased former delivery is not permissible in Shariah. Therefore for the Islamic Banks Parallel Salam Contracts are considered appropriate. There are also many legal issues as well which can ultimately effect the performance of the bank.  The counter party risk, low investment return risk and commodity price risk are such issues which are associated with the Salam Contract. In simple words if the seller has taken the payment and become default after that it means that the seller than unable to deliver the goods to the buyer which means that legal issues can arise. Therefore this study will going to discuss the mentioned risks in detail and how those risk can be mitigated. (Kanno, 2015).

Significance of Research of Sharia and Legal Issues in Salam Contract Bank

        This research study has huge significance because In Islamic Banking Shariah framework plays major rule in its operation and performance. The financial approaches such as Salam contract is not well known therefore there is a need to identify the issues which occur in the Salam Contract. If the issues are going to be identified and a mitigation strategy is going to be implemented than not only the performance of the Islamic banks will enhanced but also the banks will going to generate significance amount of profit. The paper have discussed the Noor Bank as a case study to evaluate the legal and Shariah Issues in Salam Contract. The Noor Bank is a major Islamic Bank of United Arab Emirates (UAE). It has branches in Abu Dhabi, Sharjah and Al Ain. Over the years the bank has experience immense growth and have generated significant amount of profit. This paper will try to investigate how the performance of the Noor bank get effected by the Salam contract and what issues occur in Salam bank.

Empirical Study of Sharia and Legal Issues in Salam Contract Bank

        Noor Bank is established in the year 2008 in the city of Dubai. The Noor bank is owned by Noor Investment Group which has 94.9% of the Corporation shares. The Emirates Investment Authority has owned 5% of the corporation’s shares. The head quarter of the corporation is situated in Dubai. The corporation has earned several awards of the years which shows its high performance. The bank has won the award of Leading Islamic Finance Book Runner and the award of best use of technology. Being a major Islamic bank it has. (Aebi, Sabato, & Schmid, 2012).

References of Sharia and Legal Issues in Salam Contract Bank

Aebi, V., Sabato, G., & Schmid, M. (2012). Risk management, corporate governance, and bank performance. 36, 3213–3226.

Kanno, M. (2015). Assessing systemic risk using interbank exposures in the global banking system. 20, 105-130.