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Financing the Trade of Agricultural Commodities

In: Food Security, Affordable Housing, and Poverty

Author

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  • Ahmet Suayb Gundogdu

    (Istanbul Sabahattin Zaim University)

Abstract

This chapter presents the Islamic way of agricultural commodity trading and the risk issues faced by financial institutions financing trade transactions. The chapter deals with demand-side issues and risk aspects. It will first categorize the Islamic trade finance contract into asset-based and asset-backed and defines contracts for sub-categories of exports and imports. The categorization is related to the nature of transactions and the risk associated with the transaction. Afterward, the concept of Margin Call for asset-backed Murabaha will be illustrated before the introduction of the Islamic Agricultural Future Contract. Indeed, Shari’ah-compliant derivatives can mitigate risk and decrease uncertainties if appropriately employed. The chapter notes that in the conventional options and futures, which involve Maysir and Gharar, the volatility feeds into instability in agricultural production. Islamic finance restrictions in developing future contracts can lead to agricultural price stability. Hence, the chapter concludes with an Islamic future contract proposal based on electronic warehouse receipts vis-à-vis the liquidity management aspect for financial institutions. These contracts for liquidity management would be resource mobilization for the agricultural sector.

Suggested Citation

  • Ahmet Suayb Gundogdu, 2023. "Financing the Trade of Agricultural Commodities," Palgrave Studies in Islamic Banking, Finance and Economics, in: Food Security, Affordable Housing, and Poverty, chapter 0, pages 87-124, Palgrave Macmillan.
    • Handle: RePEc:pal:psibcp:978-3-031-27689-7_4
    DOI: 10.1007/978-3-031-27689-7_4
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