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Salam sukuk are certificates
of equal value issued for the purpose of mobilizing Salam capital so that
the goods to be delivered on the basis of Salam come to the ownership of the
certificate holders. The issuer of the certificates is a seller of the goods
of Salam, the subscribers are the buyers of the goods, while the funds
realized from subscription are the purchase price (Salam capital) of the
goods. The holders of Salam certificates are the owners of the Salam goods
and are entitled to the sale price of the certificates or the sale price of
the Salam goods sold through a parallel Salam, if any.
Salam-based securities may be
created and sold by an SPV under which the funds mobilized from investors
are paid as an advance to the company SPV in return for a promise to deliver
a commodity at a future date. SPV can also appoint an agent to market the
promised quantity at the time of delivery perhaps at a higher price. The
difference between the purchase price and the sale price is the profit to
the SPV and hence to the holders of the Sukuk.
All standard shariah requirements that apply to Salam also apply to Salam
sukuk, such as, full payment by the buyer at the time of effecting the sale,
standardized nature of underlying asset, clear enumeration of quantity,
quality, date and place of delivery of the asset and the like.
One of the Shariah conditions relating to Salam, as well as for creation of
Salam sukuk, is the requirement that the purchased goods are not re-sold
before actual possession at maturity. Such transactions amount to selling of
debt. This constraint renders the Salam instrument illiquid and hence
somewhat less attractive to investors. Thus, an investor will buy a Salam
certificate if he expects prices of the underlying commodity to be higher on
the maturity date.
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