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This study focuses on issues in agricultural finance in Pakistan
and suggests the use of bay‘ al-Salam, the forward contract as allowed in
Islamic law of contracts. Despite vital importance, the agriculture sector
in Pakistan hasn’t been able to make the case to gain attention on the
Government’s priority list. A number of negatively impacting elements
can be pointed out, but the standalone interest based system of agricultural
credit can be termed as the most harmful for farmers, agriculture sector
and the national economy. Major problems include insufficient institutional
credit, exorbitant rate of interest, non-availability of collateral and the
cumbersome procedures. This situation creates a credit gap which is filled
by the non-institutional sources like middlemen, shopkeepers and money
lenders who too exploit the poor farmers. However, they still borrow
from private sources as the access is easier. The concerns are growing
about the existing interest based credit system and voices are also raised
for an alternative system that is easy to access as also compliant with the
Shar¯ı‘ah principles. Salam financing for the purchase of crops initiated
by Sudanese banks couldn’t create desired impact fully. Similarly, Salam
financing offered by First Islamic Bank of Indonesia faced serious Shar¯ı‘ah
compliance issues. However, a private body namely Wasil Foundation’s
bay‘ al-Salam initiative in Pakistan seems comparatively a successful story.
A relatively better response and wider acceptance by the stakeholders to
Salam financing offered by Wasil indicates that banks (both conventional
and Islamic) cannot apply Salam efficiently due to non-availability of
required infrastructure. Although Salam financing is highly instrumental
mode of finance for agriculture, but could fail if managed through the
Islamic banks in obtaining the desired outcome. This study, based on
the literature and expert opinion collected through a survey, proposes a
separate body to handle Salam financing to agriculture in Pakistan.
Naeem Ahmed, Atiquzzafar Khan, Muhammad Tahir Mansoori. (2019) Issues in Existing Agricultural Credit and Scope of Bay‘ al-Salam as an Alternative, Journal of Islamic Business and Management, Vol ume 9, Issue 1.
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