Developing an Islamic Business Model: A Case for Agricultural Value Chain Finance in Agrobank, Malaysia

Abstract

Purpose — This study aims to analyse the development of an Islamic business model in the form of an agricultural value chain finance (AVCF) in Agrobank, Malaysia, from 2016 to 2020. Design/Methodology/Approach — This qualitative research adopted the case study approach, and data were collected by using the interview and document analysis methods. The interviews involved a member of the Shariah committee as well as the Chairperson of the Shariah department in Agrobank. The document analysis involved Agrobank’s annual report and its official website (www.agrobank.com.my). Findings — Findings indicate that Agrobank’s business model not only considers how to make profit but also how to practice and propagate Islamic values. Hence, Agrobank has modified the AVCF from trade finance to Sharīʿah finance contracts. This ensures that Agrobank’s business does not contradict Sharīʿah principles. However, mushārakah (participatory mode of finance) and muzāraʿah (temporary sharecropping) contracts, which are appropriately reputed, were not applied by Agrobank for the last five years. Findings show that qarḍ (loan), bayʿ al-ʿīnah (sale and buyback), bayʿ bi thaman ājil (deferred-payment sale), murābaḥah (sale with profit disclosure), tawarruq (two sale-and-purchase contracts, involving at least three parties, with the intention being to attain liquidity), and ijārah (lease) are contracts that positively affect businesses in Agrobank. These contracts provide flexibility for some people who are involved in the value chain. Originality/Value — This is an attempt to study the application of AVCF from an Islamic perspective in Agrobank. Research Limitations/Implications — Discussions in this paper are limited to AVCF as an Islamic business model in Agrobank. Practical Implications — This study encourages Islamic financial institutions (IFIs) to adopt the Islamic AVCF system through lessons learnt from Agrobank.