State Bank develops Sharia compliant model product to meet farming community working capital needs

Karachi: State Bank of Pakistan SBP developed a model product based on ‘‘Salam’’ to meet production finance (working capital) needs of country’s farming community. Developed, in consultation with all stakeholders it will facilitate Islamic Banking Institutions IBIs in improving access of agricultural Islamic financing.

It covers Sharia related aspects, business cycle, financing requirements of farm/ crop production activities, a SBP circular said Tuesday.

Based on ‘‘Salam’’ i.e. sale of agri. produce against full payment in advance but deferred delivery on a specified future date, it will give necessary flexibility to farmers to use funds to meet farming input requirements.

IBIs may adopt model product in present form or with some adjustments to suit their organizational & operational needs and market characteristics, subject to compliance with SBP regulations and approval from their Shariah Advisors.

IBIs were advised to ensure their relevant staff possesses requisite knowledge, expertise about product, should also launch awareness campaigns through electronic, print media, seminars, workshops, to ensure their clients/ farmers are fully educated, familiar with requirements like documentation, loan limit, process flow/ procedure, etc.

According to model product, farmers at their discretion may enter into single or multiple ‘Salam’ transactions based on their specific funding needs. Under single ‘Salam’ total funds needed by farmer will be disbursed/ credited to farmer’s account in lump sum.

Under multiple ‘Salam’ transactions funds would be disbursed in tranches as and when needed by farmer by executing various/ multiple ‘Salam’. However, farmer would have option to choose single or multiple ‘Salam’ depending upon his/ her convenience and preference.

All farmers, tenants, growers involved in raising crops are eligible to get financing from IBIs under scheme (‘Salam’). The maximum financing to be extended to farmer could be 1-3 years average market value of produce being purchased under ‘Salam’.

Preferably, quantity of commodity to be purchased under ‘Salam’ may not exceed 75% of expected production. ‘Salam’ financing may be allowed as per cropping cycle (as mentioned in ‘Salam’ contract). However, financing is usually provided for a period of 6 to 8 months, except for sugarcane crop, which can go up to 18 months, circular said.

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