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Islamic Modes Of Financing For Agriculture: A Supply And Demand Sides Approach

Author

Listed:
  • Jardine A Husman

    (Bank Indonesia)

  • Ali Sakti

    (Bank Indonesia)

Abstract

Agriculture has not yet impressed the formal financial institutions as the focal distribution of funds. In the meantime, agriculture has survived the pandemic and has become one of the sectors contributing to positive national economic growth. Unlike its conventional counterparty, who merely acts as a lender or creditor, the Islamic financial institutions presumably grab the opportunity to be farmers' partners, beyond being simply the creditor, due to regulation advantage. Therefore, this research attempts to propose practical models of Islamic modes of financing for the agricultural sector. We conduct qualitative and quantitative approaches from both supply and demand sides. We gathered data from the literature, focus group discussions, questionnaires through surveys and in-depth interviews. A total of 51 works of literature, ten experts from the supply side, seven experts from the demand side, 463 microscale farmer respondents, and six experts for in-depth judgment have been studied, interviewed, and surveyed for being analyzed using content analysis, cross-tabulation, and regression per agricultural subsector of food crops, horticulture, plantation (estate crops), fisheries, livestock, and forestry. The result emphasizes that the off-takers take a strategic role as the market guarantor. Each sector is proven to have a significantly different nature of Islamic institution selection, including social and commercial institutions, the nature of Islamic financing modes, and the financial need-stage in production. Salam, or forward transaction, is expected to prom Islamic financial institutions distributing their funds to farmers. We recommend further supportive regulation to attract the financial institution.

Suggested Citation

  • Jardine A Husman & Ali Sakti, 2021. "Islamic Modes Of Financing For Agriculture: A Supply And Demand Sides Approach," Working Papers WP/11/2021, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp112021
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    File URL: http://publication-bi.org/repec/idn/wpaper/WP112021.pdf
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    References listed on IDEAS

    as
    1. Bambang Waluyo & Sylvia Rozza, 2020. "A Model for Minimizing Problems in Salam Financing at Islamic Banks in Indonesia," International Review of Management and Marketing, Econjournals, vol. 10(2), pages 1-7.
    2. Anas Alhifni* & Tuti Kurnia & Biyati Ahwarumi & Rully Trihantana, 2019. "Financing Product Design for Fisheries Through Sharia Micro-Finance Institutions," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(7), pages 1144-1149, 07-2019.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    agriculture; Islamic financing; off-taker; salam; supply-demand side;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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