Application of Islamic banking instrument (Bai Salam) for agriculture financing in Pakistan

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -Islam prohibits interest as a source of income or profit. The purpose of this paper is to explore the possible application of Bai Salam contract (forward sale agreement) as an alternative financial instrument in the agriculture sector of Pakistan. Design/methodology/approach -A survey was conducted in four districts of the Punjab with a specifically designed questionnaire. A convenient sampling technique was used to gather farmers' concerns related to crops inputs, output and credit requirements. Findings -Empirical findings conclude that agriculture income represents only up to 60 percent of the income of an average farm household. About 70 percent of farmers participate in the credit market. They need money to purchase crops inputs, to pay the labour and to hire rental machinery. Farmers believe that they can save up to 25 percent in costs if they purchase inputs on cash. The survey also discloses that middlemen are the larger financers and buyers of crops in the rural economy whereby only 10 percent of transactions are conducted on a purely cash basis. Farmers usually return the money after the sale of the crop.Research limitations/implications -The concept of the paper can be extended to areas where large landlords dominate the scene. Alternatively, it can be extended towards non-farm activities such as cattle raising and poultry. Originality/value -The paper is a first comprehensive effort to explore the possible application of an Islamic banking instrument in the agriculture sector of Pakistan. It also suggests three possible models for financing under a Bai Salam contract. Some policy recommendations are also given.

The profitability of Islamic banking in Sudan

“…Using the case of the Pakistan banking sector, Kaleem and Wajid (2009) by the bank, the price may become lower than the expected price, creating commodity price risk.…”

Study on the Socioeconomic Factors Affecting Adoption of Agricultural Machinery

“…Most farmers still depend on their personal capital and resources for funding of their farming practices. Kaleem and Abdul Wajid (2009) mentioned that most farmers who are given financial advances by middlemen or agents are consequently obligated to sell their crops to the same agent or middlemen at a price that is lower than the market price. The same study also stated that only10% of all transactions were performed using cash and that people avoided banks or institutions due to complex documentation process and high transaction cost.…”

Bay Salam: A Proposed Model for Shari’ah Compliant Agriculture Financing

“…Farmers are in vicious circle of disappointments and frustrations. They do not have the liberty to sell their crops on their own (Kaleem, 2008). This problem is very well addressed by adopting Salam financing mode specifically to assist small scale farmers financially and all other farmers in general.…”