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Designing A Waqf-Based Agricultural Financing Model

Author

Listed:
  • Rifaldi Majid

    (Diponegoro University, Indonesia)

  • Raditya Sukmana

    (Airlangga University, Indonesia)

Abstract

Limited access to financing, followed by the difficulty in the absorption of crop yields, is still a fundamental problem for farmers. This study proposes an integrated agricultural low-cost financing model based on cash waqf along with its parameters and risk mitigation. The proposed model is developed from a literature review underpinned by in-depth interviews with 17 experts (regulators, academia, and practitioners), followed by a Focus Group Discussion, and finally validated by the key experts. Findings reveal that cash waqf fund could be used as a low-cost financing with several risk mitigation procedures to finance farmers who have hardship accessing financing. Through institutional engineering, a nazir (overseer) will involve a specialist vehicle in developing a value chain to facilitate off-takers ready to buy farmers' crops at competitive prices. The proposed model employed Mudharaba-Salam and Ijara schemes. The associated risks can be mitigated by a comprehensive feasibility study, using takaful/guarantee or reserve funds and financial restructuring. This model is expected to improve farmer welfare and national food security and deepen inclusive Islamic financial products in the agricultural sector.

Suggested Citation

  • Rifaldi Majid & Raditya Sukmana, 2023. "Designing A Waqf-Based Agricultural Financing Model," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 9(3), pages 443-464, September.
    • Handle: RePEc:idn:jimfjn:v:9:y:2023:i:3d:p:443-464
    DOI: https://doi.org/10.21098/jimf.v9i3.1686
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    More about this item

    Keywords

    Agricultural financing; Waqf; Institutional engineering; Food security;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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