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Financing the Production 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 shows farmers’ pre-harvest and post-harvest financing through a case study of an agricultural cotton cooperative in West Africa. Cooperatives would be essential in safeguarding smallholder farmers against unfair input and output prices. It is better to finance agricultural production via cooperatives and economic empowerment programs. Islamic finance contracts with embedded asset-based and asset-backed features can better suit agricultural production financing. The chapter presents a case of structured finance for an agricultural cooperative for the pre-harvest and post-harvest phases. One of the major confusions in Islamic finance is using contracts intended for resource mobilization or lending across all sectors. For instance, the asset production finance contract of Islamic finance is Istisna, while in practice, Murabaha contracts are often used for the housing sector. The same holds for agricultural production finance. Agricultural production should be financed with a Salam contract, not Murabaha. In this regard, Salam's contract for a structured finance markup calculation for the to-be structure is presented as a more appropriate method of financing than as-is Murabaha-based financing in a case study.

Suggested Citation

  • Ahmet Suayb Gundogdu, 2023. "Financing the Production of Agricultural Commodities," Palgrave Studies in Islamic Banking, Finance and Economics, in: Food Security, Affordable Housing, and Poverty, chapter 0, pages 125-145, Palgrave Macmillan.
    • Handle: RePEc:pal:psibcp:978-3-031-27689-7_5
    DOI: 10.1007/978-3-031-27689-7_5
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