Exploring the feasibility of Muzara’ah based Islamic running finance model as an alternative for agriculture credit
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 27 August 2024
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.
Keywords
Acknowledgements
The authors would like to thank the participants of the 5th Islamic Finance, Banking Ethics Global Conference, Virtual Conference held in June 2021, who provided them meaningful feedback that helped to improve the quality of the manuscript. Authors would also like to thank the Editor, Associate Editor of this journal for handling this submission, and anonymous reviewers for useful comments, that further improved this study. All errors are their own. This paper is based on the corresponding author’s MS Islamic Banking and Finance thesis.
Citation
Daud, H.S. and Sharif, S. (2024), "Exploring the feasibility of Muzara’ah based Islamic running finance model as an alternative for agriculture credit", Journal of Islamic Accounting and Business Research, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JIABR-12-2022-0352
Publisher
:Emerald Publishing Limited
Copyright © 2024, Emerald Publishing Limited