ISLAMIC MODES OF FINANCING FOR AGRICULTURE: A SUPPLY AND DEMAND SIDES APPROACH

Jardine A Husman () and Ali Sakti ()
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Jardine A Husman: Bank Indonesia
Ali Sakti: Bank Indonesia

No WP/11/2021, Working Papers from 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.

Keywords: agriculture; Islamic financing; off-taker; salam; supply-demand side (search for similar items in EconPapers)
JEL-codes: D64 G21 G23 O13 Q14 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2021
New Economics Papers: this item is included in nep-agr, nep-hme, nep-isf and nep-sea
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http://publication-bi.org/repec/idn/wpaper/WP112021.pdf First version, 2021 (application/pdf)

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