What is the meaning of Bai- Salam?

What is the meaning of Bai- Salam?

Ans: Bai- Salm has two words. One” Bai” and another one is “ Salam”. “Bai” means “ sales and purchase” and “ Salam” means advance sale and purcahse.

Question: How to define Bai- Salam?

Ans:  Bai-salam defined as a contract or agreement with a buyer and seller in which the seller is sold in advance the certain commodity (ies)/ products(s) permissible under Shairah and law of land to the buyer as per terms and conditions of agreement. And the merchandise/ commodity (ies)/ products(s) is/are delivered as per specification, size, quality at a future time in a specific place.

We can say in other words, Bai-salam is an advance buying and selling procedure  which is allowed by the shariah principle. In this mode, commodity (ies)/ products(s)/ goods are supplied after a specific time (in future) but the payment/exchange is made ob spot (i.e. at present).

In a nutshell, Bai-Salam is that type of procedure where the price is paid in cash, but the delivery of goods is deferred

Question: What are the feature of  Bai- Salam?

Ans : Important features of  Bai- Salam are given bellow:

1)      In this mode, the seller can sold the goods without having the physical possession.

2)    If the goods are ready for sales, Bai-salam mode is not allowed by the Islamic Shariah Principle.

3)    Generally, this mode is used to meet up the urgent need of the shortage of fund/cash of Industrial and Agricultural products.

4)    It is permissible to obtain collateral security to minimize the risk of investment.

5)    It is also permissible to obtain mortgage or personal guarantee from the third party  as security at the time of signing agreement or before the signing of the agreement. \

6)    The seller (manufacturer)/ client may be made agent of the to sell the goods delivered to the bank by him provided a separate agency agreement is executed between the bank and the client (Agent ).

7)    This mode is used for only agricultural product.

8)    Detailed specification of the goods must clearly mentioned in the contract to avoid ambiguity.

9)    The exact time and place of delivery must be specific.

10)   Mode of transportation, transport costs, storage charge/ godown rent, insurance etc if any (who will bear) must specified in the contract.

11)  All risk and responsibility on the seller or client, if any loss arises, the seller must payback the value of commodities/products.

12)  It is not necessary to mention cost of commodities/products and profit separately in the contracts; only purchase price may be mentioned.

13)  The seller shall responsible for maintaining quantity, quality, and specification of the commodities/ products until making physical/constructive delivery of the same to the buyer.

Procedure of Bai-Salam investment in Export oriented industries

a)        This mode of investment may be allowed after opening of back to back L/C, arrival of raw materials, shipment of raw materials etc.

b)       The bank may sell/export it goods through the seller/exporter (client) under a separate agreement or this may be done dully incorporating in the Bai-Salam Agreement unless otherwise settled and prescribed.

c)        The price of the Bai-Salam deal shall be fixed up keeping in view the export/sales price mentioned in the relative export L/C/contract, the bank shall fix up its profit as per rate prescribe by the head office time to time.

The following Accounting entries shall be passed at various steps of Bai-Salam Investment:

Step One:

When bank as Bai-Salam purchaser make advance payment to the client

(Producer/Manufacturer /supplier) against purchase of a certain quantity/number of goods a per Bai-Salam Agreement:

Dr.	Bai-Salam Investment A/C No.  ......of M/S.....(Client’s name)
Cr.	Payment Order/Demand Draft/ TT a favoring to the client or Current account of the client.

[ Being the amount paid for purchase of .............units of .........under Bai-Salam mode of investment from M/S............for ultimate sale/export of the same as per Bai-Salam Agreement.]

Step Two:

After export/sale, when the client (Producer/Manufacturer /supplier) submits the bills either foreign or local to the bank and if the bank purchases or negotiates the same:

Dr.	FBP/FBN/IBP Account of M/S. .... (Producer/Manufacturer /supplier)
Cr.	Bai-Salam Investment A/C No.  ......of M/S.....(Client’s name)- to the extent of outstanding liability
Cr.	Investment A/C (Bai-salam) (ensuring prescribed Rate of Return fixed by HO.)- to the extent of profit as per Agreement.
Cr.	F.C. held against B.B. Bills
Cr.	Various Investment A/Cs liability
Cr.	Current Account No...........M/S ......( Client Producer/ Manufacturer/Supplier)( Being the sales proceeds of the balance/ remaining items/goods after adjustment of client’s liability, if any, due to the bank including profit)

Step Three:

When Export/Sales proceeds is realized:

Dr.	Bank’s General (ID) Account
Cr.	FBP/FBN/IBP Account of M/S. .... (Producer/Manufacturer /supplier)
{Being amount of FBP/FBN/IBP Account (export proceeds) realised}

NB: Any other entries regarding FBP/FBN to be passed as per instruction/circular issued/ to be issued by ID from time to time.

Step Four :

After export/sale, while the client (Producer/Manufacturer /supplier) submits the bills either foreign or local to the bank and if the bank sends of the same for collection:

No entry for Bai-Salam investment but contra liability vouchers is to be passed regarding FBC as per instruction/circular issued/ to be issued by ID from time to time.

While the proceeds of Bills sent for collection is realised:

Step Five :

1.

Dr.	Bank’s General (ID) Account
Cr.	Bai-Salam Investment A/C No.  ......of M/S.....(Client’s name)- to the extent of outstanding liability
Cr.	Investment A/C (Bai-salam) (ensuring prescribed Rate of Return fixed by HO.)- to the extent of profit as per Agreement.
Cr.	F.C. held against B.B. Bills
Cr.	Various Investment A/Cs liability
Cr.	Current Account No...........M/S ......( Client Producer/ Manufacturer/Supplier) ( Being the sales proceeds of the balance/ remaining items/goods after adjustment of client’s liability, if any, due to the bank including profit)

(Being the proceeds of FBC No....against the bills submitted by the client (Producer/ Manufacturer/Supplier realised).

2.The contra entry passed earlier while sending the bills on collection to be reversed.

If the client delays in production /delivery /supply/sale/export the goods and if fine is charges as per contract:

Dr.	Bai-Salam Investment A/C No.  ......of M/S.....(Client/ Producer/Manufacturer/Supplier)
Cr.	Investment Income A/C (Being the amount recovered of fine charged for the delayed period as per contract.)

If the client fails to produce /delivery /supply/sale/export the goods, Bank will realise the amount along with fine passing the following entries:

Dr.	Current A/C No..... of the Client/ Producer/Manufacturer/Supplier)
Cr.	Bai-Salam Investment A/C No.  ......of M/S.....( Client/ Producer/Manufacturer/Supplier))- to the coverage of outstanding liability
Cr.	Investment Income A/C-to coverage fine amount. (Being the amount recovered/realized for closing the Bai-Salam Investment A/C of the client along with fine as per contract)

If the investment A/C becomes classified as SS/DF, the following entries shall be passed for the Investment Income/Fine accrued for the period from the beginning of the year to the date of classification (for the unclassified/overdue period of the year). If it is classified as Bad/Loss (B/L) accounting of investment Income/ Fine must be stopped

(as per Instruction of Bangladesh Bank i.e. central Bank) 

Dr.	Bai-Salam Investment A/C No.  ......of  M/S..... (Client/ Producer/Manufacturer/Supplier)( for the classified period)
Dr.	Investment Income A/C (for the unclassified overdue period of the year)
Cr.	Fine Suspense A/C (Bai-Salam) (Being the amount recovered of fine transferred to fine suspense A/C against classified Bai-Salam Investment A/C No......of M/S..........)

At the time of filing suit for recovery of B.L. Classified Investment, the following entries shall be passed. Every effort be exhausted for disposal of Asset/Property, if any, under Bank’s custody before filing the suit.

(i)

Dr.	Bai-Salam Investment A/C No.  ......of  M/S..... (Client/ Producer/Manufacturer/Supplier)( for the classified period)
Cr.	Fine Suspense A/C (Bai-Salam) (Being the amount of fine accrued for B/L classified period not charged earlier, now charged)

(ii)

Dr.	a)      Suspense A/C : Court Fee b)     Expenditure A/C : Legal Expenses
Cr.	Payment order / A/C of the lawyer (Being the amount paid to the lawyer for court fees and lawyer charges and other related expenses for filing suit)

while Recovery /Deposit is made from/ by the client after filing suit, the following entries shall be passed:

Dr.	Cash/ Current A/C No. ......of  the client/ Producer/Manufacturer/Supplier
Cr.	Bai-Salam Investment A/C No......of  M/S.... the client/ Producer/Manufacturer/Supplier (Being the amount paid/deposited by the Investment client after filing suit)