Salam is forward sale agreement. Suppose someone says you that I can grow potato but do not have resources, you give him RS 10,000 on the agreement that he will give you 1 ton potato, this is salam contract. This sale has number of features that make it most suitable mode for producer financing. For example: 1. the producer do not has skills of marketing, therefore he may not be able to market. I salam, marketing will be responsibility of financer who has a lot of resources for that 2. The financier do not need collateral, he can just take an assurance that money will be used for the purpose mentioned in the agreement. In this way, the poorest of poors could be financed. 3. The producer does not have to worry about sale of his product, its already sold. he can spare all his energies for production. 4. typically the enterprenuer has to worry about three things; skills, finance and marketing. in salam contract, nobody has to worry about all three, skills themselves have to contact the financier, financier has the resources and trained force for marketing. therefore business can run efficiently. 5. with a small amount of input, thousands of livelihood opportunities can be produced. For example a person who will wants to grow potato, would not need amount in million, only few thousand will be sufficient. Therefore if you have millions, you can finance hundreds. Look how pretty this mode of finance is which has been designed 1400 years ago
Posted on: Sat, 18 Jan 2014 12:33:04 +0000
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