Sharīʿahcompliant working capital financing_ a case-study of Indian sugar industry

Abuzar Nomani and Mohammad Khalid Azam

Journal of Islamic Accounting and Business Research, 2020, vol. 11, issue 3, 674-693

Abstract: Purpose - This paper aims to assess howSharīʿahguidelines improve the working capital needs of the Indian sugar industry. Previous studies reveal that the sugar industry in India is in a state of cash deprivation for decades. Finance is not available for expansion, as well as for working capital requirements. Banks have also declined to provide working capital loans to the sugar industry. Design/methodology/approach - Lack of working capital management and its impact upon sugar mills profitability are examined based on a sample of six Indian sugar mills and the use of panel data analysis for the period 2011-2015. Findings - The regression results suggest the need for reducing the number of days’ account receivables and inventories to a reasonable minimum to maintain the liquidity necessary for the mills, which current mills cannot manage to achieve, and consequently, suffer liquidity problems. Practical implications - This paper presents a model ofSharīʿah-compliant working capital financing for cash deprived Indian sugar industry. All the three parties stand to benefit from this arrangement: the farmer will get the price of his crop promptly and at its farmland, sugar mill will secure the required quantity of raw material (sugarcane) without any immediate cash outflow, and the Islamic bank will earn a reasonable mark-up profit from this transaction. Originality/value - The study is the first comprehensive effort to explore the possible combination of Islamic banking products subject to the fulfillment of needs of sugar mills and farmers and the application of an Islamic banking instrument in the agriculture sector of India. It also suggests the possible models for financing under a Salam and Murabahah contract.

Keywords: Islamic finance; Murabahah; Salam; Sugar industry; Working capital (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-09-2016-0098

DOI: 10.1108/JIABR-09-2016-0098

Access Statistics for this article

Journal of Islamic Accounting and Business Research is currently edited by Dr Mohammad Hudaib and Prof Roszaini Haniffa

More articles in Journal of Islamic Accounting and Business Research from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().