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Risk‐Sharing And The Supply Of Agricultural Credit: A Case Study Of Islamic Finance In Sudan

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  • Adam B. Elhiraika

Abstract

The prohibition of interest‐bearing credit and its replacement with a profit and loss sharing (PLS) system that accords with Islamic injunctions has been associated with remarkable increases in formal lending to agriculture. A model is used to show that the PLS mechanisms may reduce adverse selection and moral hazard effects as returns to both lenders and borrowers are not fixed but dependent on the actual results of credit‐financed projects. Survey data is utilised to demonstrate that the instruments employed by banks in agrarian finance provide higher returns than non‐agricultural loans, and are hence attractive despite the yield and price uncertainty characteristic of agricultural production.

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  • Adam B. Elhiraika, 1996. "Risk‐Sharing And The Supply Of Agricultural Credit: A Case Study Of Islamic Finance In Sudan," Journal of Agricultural Economics, Wiley Blackwell, vol. 47(1‐4), pages 390-402, January.
    • Handle: RePEc:bla:jageco:v:47:y:1996:i:1-4:p:390-402
    DOI: 10.1111/j.1477-9552.1996.tb00700.x
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    References listed on IDEAS

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    1. Saleem, Samir Taha, 1987. "On the Determination of Interest Rates in Rural Credit Markets: A Case Study from the Sudan," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 11(2), pages 165-172, June.
    2. S. Yazdani & G. P. Hill, 1993. "Islamic Credit: The Iranian Experience," Journal of Agricultural Economics, Wiley Blackwell, vol. 44(2), pages 301-310, May.
    3. Ingo Karsten, 1982. "Islam and Financial Intermediation (L'Islam et l'intermédiation financière) (Islamiso e intermediación financiera)," IMF Staff Papers, Palgrave Macmillan, vol. 29(1), pages 108-142, March.
    4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    5. Carter, Michael R., 1988. "Equilibrium credit rationing of small farm agriculture," Journal of Development Economics, Elsevier, vol. 28(1), pages 83-103, February.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-927, December.
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    Cited by:

    1. Adam B. Elhiraika & Khalid Abu Ismail, 2004. "Financial Sector Policy and Poverty Reduction in Sudan," Working Papers 0411, Economic Research Forum, revised 05 Jun 2004.
    2. Xiaoyu Bian & Guanxin Yao & Guohong Shi, 2020. "Social and natural risk factor correlation in China's fresh agricultural product supply," PLOS ONE, Public Library of Science, vol. 15(6), pages 1-13, June.
    3. Abdul Hamid Ahmad Abu Sulayman, 1998. "The Theory Of The Economics Of Islam (Ii)," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 6(2), pages 87-113, December.
    4. Adam B. Elhiraika, 1998. "Macroeconomic Instability, Financial Repression and Islamic Banking in Sudan," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 6(2), pages 61-86, December.
    5. Geoff Bright, 1999. "Assessing the Effects of Hazards and Interventions on Farm Household Liquidity in Sudan ‐ A Preliminary Accounting Model," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(1), pages 83-92, January.
    6. Rodney Wilson, 1998. "Islamic Project Finance and Private Funding Schemes," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 6(2), pages 41-60, June.

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