Salam Bonds

Definition of "Salam Bonds"

A proposed financial instrument for borrowing funds by government. The government can issue these bonds for supplying some goods or services in the future (on the principle of bai‘ al-salam). The bonds will be non-negotiable but they are denominated in physical quantities rather than in money terms. The bond holder can return the bond before time at par value and get the money back from the government. The incentive for the bond holders will be that the government will agree to provide the specified goods or services with a mark-down on the cur- rent market price or in times of inflation at the current market price. In the latter case, the government will not increase the price despite inflation.