The possibility of application of salam in Malaysian Islamic banking system

Purpose – This research aims to explore the theoretical nature of salam contract in depth, the extent of its use in the banking arena of Malaysia and to test the theoretical feasibility of its future application by the Islamic banks in Malaysia by suggesting an Islamic banking product structure based on salam contract. Design/methodology/approach – This is a legal exploratory study primarily focused on library research. Findings – Salam contract is more susceptible to risks than the rest of the Islamic commercial contracts used by the Islamic banks in Malaysia and none of the Islamic banks in the country utilize this type of contract as a mode of financing. However, the research indicates that a feasible banking product based on salam contract could be formulated to help poor farmers in the country. To prove this a new model product based on salam contract to help farmers is created by the authors and the pros and cons of the product with the risk mitigating ways are explored. It is found that theoretically, this product is workable. Originality/value – This research will complement the knowledge based on practical applicability of salam and is targeted to the Islamic financial Institutions in Malaysia, who are the prospective beneficiaries.