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Glossary

Salam Sukuk

Category — Islamic Finance
A Salam Sukuk is based on Bai’ Salam contracts, they are instruments that represent the sale of a commodity that is deferred delivery at a price received in advance, the commodity in advance is a form of debt, where the Sukuk issuer is a seller of the stipulated commodity (to be delivered in future) and Sukuk holders are the buyers of the good.

Characteristics of Salam Sukuk:

1. Sharia-compliant financial instrument.
2.A Salam Sukuk is not tradabl. The issuance of a Salamuk is possible only on the primary market, while trading them in the secondary market is considered contrary to Sharia.
3. The issuer of the Salam Sukuk is the seller of Salam goods such as cotton, wheat, sugar in large quantities, or industrial products such as machinery and equipment.
4. The goods are non-existent at the time of the contract.
5. Sukuk holders receive the sale price when the Salam goods are sold.
6. The commodity or asset involved in the transaction must be standardized.
7. The good must be availablen the market during the period from the sale to delivery, so that, if there was a problem in receiving the good from the expected source, it could be procured from an alternative source.

Advantages:

1.A Salam Sukuk is used to support a company’s short-term liquidity requirements.
2. Ensure that goods are obtained when needed at an appropriate price.

Disadvantages:
1. Documentation requirements for Salam Sukuk are relatively high.

Since Salam is a debt-creating transaction, the Salam Sukuk is not tradable (because debt cannot be traded from the perspective of the Islamic Sharia).
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