Islamic Alternative to Existing Agricultural Credits: A Study of Agri-Credit System of Pakistan

Abstract

Agricultural sector is the backbone of Pakistan but there are a number of problems and challenges for agriculture sector in Pakistan. In this regard, agricultural sector is facing mostly credit- related financial problems among the framers. The Islamic Shariah has provided solutions to these problems through various Islamic financial contracts including Salam, Musaqat, Muzaraat and Mugharasa but the effectiveness of these contracts can only be possible if required institutional and infrastructural facilities are adequate for their applicability. Keeping in view this, the current research studies the issues related to the applicability of these Islamic financial contracts in Pakistan through Islamic banks. The main objective of the research is to review the issues in agriculture credit system of Pakistan through banks and the scope of Salam contract as an effective alternative. The research also focuses on the problems in Salam agriculture financing through Islamic banks. The study has applied the qualitative research method. The data for the research has been collected through semi structured interviews of ten bankers of Islamic banks. Besides this, expert opinion of the five eminent religious scholars has also been sought. The data collected is then processed through thematic content analysis. The findings revealed that there are problems of insufficient institutional credits for farmers, very high rate of interest, issues in managing collaterals and exhausting credit procedures in existing agricultural financing. It is also observed that Salam financing through banks is inefficient because required infrastructure facilities are not available. Therefore, it is recommended through that farmers should be provided Salam based credit financing through institutions other than IBs.