Exploring the feasibility of Muzara’ah based Islamic running finance model as an alternative for agriculture credit

IF 2.5 Q2 BUSINESS, FINANCE Journal of Islamic Accounting and Business Research Pub Date : 2024-08-27 DOI:10.1108/jiabr-12-2022-0352

Hafiz Samiullah Daud, Saqib Sharif

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Abstract

Purpose

This study aims to highlight the issues encountered by Islamic Banking Institutions (IBIs) while financing the agriculture sector and explore the feasibility of Muzara’ah (crop sharing contract on partnership basis) model based on the concept of revolving credit as an alternative to current models.

Design/methodology/approach

To validate the proposed model and gauge the feasibility of Muzara’ah contract, a qualitative research method is applied based on 10 in-depth interviews with qualified industry experts and practitioners. These interviewees are selected following the purposive sampling method, and they belong to Sharīʿah board members of banking institutions, banking industry professionals engaged in agriculture lending, financial regulators (i.e. central bank personnel) and the farming community. Thematic analysis was applied to analyze the data.

Findings

The findings of this study document that Muzara’ah can be a useful alternative/solution for the growth of agriculture sector portfolio of financial institutions. Muzara’ah is cost-effective than other Islamic products, including Salam (a kind of sale in which payment is made on the spot while the delivery of the goods is deferred), and carries the features of revolving credit as offered by conventional banks/counterparts.

Research limitations/implications

The main limitation of the study is that only 10 in-depth interviews are conducted.

Practical implications

The application of the Sharīʿah compliant Muzara’ah model based on the concept of revolving credit could help increase agricultural productivity and revenues and reduce poverty and food insecurity. The research will help IBIs to develop products on the concept of Muzara’ah for farmers and other sectors of the agriculture industry.

Originality/value

To the best of the authors’ knowledge, Muzara’ah contract is not offered by formal banking institutions in Pakistan. Hence, the findings contribute to the existing literature and facilitate the policymakers and practitioners in implementing this financial product for the growth of the agriculture sector.

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探索以穆扎拉阿为基础的伊斯兰运行融资模式作为农业信贷替代方案的可行性

本研究旨在强调伊斯兰银行机构（IBIs）在为农业部门提供资金时遇到的问题，并探讨基于循环信贷概念的 Muzara'ah（基于合作伙伴关系的作物分享合同）模式的可行性，以此作为现有模式的替代方案。这些受访者都是按照目的性抽样方法选出的，他们分别属于银行机构的沙里亚（Sharīʿah）董事会成员、从事农业贷款的银行业专业人士、金融监管者（即中央银行人员）和农业社区。研究结果本研究的结果表明，Muzara'ah 可以成为金融机构农业部门投资组合增长的有效替代/解决方案。与其他伊斯兰产品相比，穆扎拉具有成本效益，包括萨拉姆（一种当场付款而推迟交货的销售方式），并具有传统银行/同行提供的循环信贷的特点。实际意义基于循环信贷概念的 Sharīʿah 合规 Muzara'ah 模式的应用有助于提高农业生产率和收入，减少贫困和粮食不安全。据作者所知，巴基斯坦的正规银行机构并未提供 Muzara'ah 合同。因此，这些研究结果有助于丰富现有文献，并帮助决策者和从业人员实施这一金融产品，促进农业部门的发展。

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来源期刊

Journal of Islamic Accounting and Business Research BUSINESS, FINANCE-

CiteScore

4.80

自引率

22.70%

发文量

期刊介绍： The journal provides a dynamic forum for the advancement of accounting and business knowledge based on Shari’ah and Islamic activities that have an impact on the welfare of society. JIABR publishes articles on the interplay between Islamic business ethics, accounting, auditing and governance, in promoting accountability, socio-economic justice (adl) and everlasting success (al-falah). It seeks to inform, among others, current theoretical and empirical research and practice in Islamic accounting, auditing and corporate governance, management of Islamic organizations, accounting regulation and policy for Islamic institutions, Shari’ah auditing and corporate governance, financial and non-financial performance measurement and disclosure in Islamic institutions and organizations. All styles of research, theoretical and empirical, case studies, practice-based papers and research notes that are well written and falling within the journal''s scope, are generally welcomed by the journal. Scope/Coverage Development of accounting, auditing and corporate governance concepts based on Shari’ah Socio-political influence on accounting and auditing regulation and policy making for Islamic financial institutions and organizations Historical perspectives on Islamic accounting, auditing and financial management Critical analysis on issues and challenges on accounting disclosure and measurement, Shari’ah audit and corporate governance Controls and risks in Islamic organizations Financial and non-financial performance measurement and disclosure.