Financing the Production of Agricultural Commodities

Ahmet Suayb Gundogdu ()
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Ahmet Suayb Gundogdu: Istanbul Sabahattin Zaim University

Chapter Chapter 5 in Food Security, Affordable Housing, and Poverty, 2023, pp 125-145 from Palgrave Macmillan

Abstract: 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.

Keywords: Salam; Murabaha; Supply chain financing; Cotton; SDGs; Food security (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:pal:psibcp:978-3-031-27689-7_5

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DOI: 10.1007/978-3-031-27689-7_5

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