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THE ROLE OF ISLAMIC BANKING IN AGRICULTURE FINANCING (CASE STUDY OF INDONESIAN AGRICULTURE SECTOR)
Corresponding Author(s) : Satria Utama
Humanities & Social Sciences Reviews,
Vol. 7 No. 2 (2019): March
Abstract
Purpose: This paper aims to analyze the role of Islamic banking in improving the agricultural sector as well as providing alternative solutions such as financing scheme for agricultural financing.
Methodology: The research method is qualitative. A review of the extant literature was carried out for collecting primary and secondary data. In-depth interviews with key informants such the farmer and Islamic bank financing manager were also conducted. Data analysis was performed by adopting data reduction, data display with SWOT matrix, verification, and conclusion.
Main findings: This paper finds that Islamic banking allocates financing for agricultural sector which is less than 10 percent of total financing. The finding is in line with the problem faced by the farmer. Based on the interview, it is known that the main problem of agriculture industry is limited access to the source of capital. The second finding pertains to the lack of Islamic banking’s role in agricultural financing caused by high risk perception and minimum competence of human resources to maintain the agricultural financing.
Applications: This paper suggests the implementation of Ba'I As Salam scheme as an alternative for agricultural financing. Salam Financing Scheme is more suitable for agricultural financing than the murabaha financing that are commonly used today. Because the salam financing scheme intends to finance the sale and purchase of new commodities that are to be processed or produced and the delivery of their goods in the future, as well as allow for irregular payment schemes made in the harvest. Some of these advantages can be agricultural financing solution that is more in line with the characteristics of agricultural sector cash flow.
Novelty/Originality of this study: Previous Studies related to the agricultural sector only deals with the impact of agricultural finance without offering low cost financing models as the solution to the main problem in the agricultural sector. This study provides solutions to these problems.
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- Abric, J. (2001). A structural approach to social representations. Representations of the Social: Bridging Theoretical Traditions, 42–47.
- Al-Jarhi, Mabid Ali.( 2001). Islamic Finance: An Efficient & Equitable Option, Islamic Research and training institute
- Antonio, M. Syafi’i. (2001). Islamic Bank: Theori and Practice. Jakara: Gema Insani.
- Askari, Hossein., Zamir Iqbal and Abbas Mirakhor. (2015).Introduction to Islamic Economics: Theory and Application. Singapore: John Wiley & Sons Singapore.
- Asutay, Mehmet. (2012). Conceptualising and Locating teh Social Failure of Islamic Finance: Aspirations of Islamic Moral Economy vs the Realities of Islamic Finance. Asian and African Area Studies, 11 (2): 93-113.
- Asutay, Mehmet. (2014). Searching for Ethics in Islamic Finance: Islamic Moral Economy Foundations. Islamic Finance & Ethics Society, SOAS, March. DOI: https://doi.org/10.5771/9783845258225_15
- Budiantoro, Setyo. Luhur F. Martha and Muto Sagala.( 2015). Calculation of Indonesia Multidimensional Poverty Index 2012-2014. Prakarsa.
- Cervantes-Godoy, D. and J. Dewbre. (2010). “Economic Importance of Agriculture for Poverty Reductionâ€, OECDFood, Agriculture and Fisheries Working Papers, No. 23, OECD Publishing. doi: 10.1787/5kmmv9s20944-en DOI: https://doi.org/10.1787/5kmmv9s20944-en
- Christiaensen, Luc., Lionel Demery and Jesper Kuhl. (2010.) The (Envolving) Role of Agriculture in Poverty Reduction: An Empirical Perspective. Working Paper No. 2010/36. Finland: UNU-WIDER.
- Fajar Adi.(2013). Analysis of Sharia Financing for Agricultural Sector Using Ba'i As Salam Agreement. Jakarta Faculty of Economics UI
- Farida, (2016). Determinan of Microcredit Repayment. Buletin Ekonomi Moneter dan Perbankan, Volume 19, Nomor 1, Juli. DOI: https://doi.org/10.21098/bemp.v19i1.600
- Grewal, Bhajan., Helena Grunfeld & Peter Sheehan. (2012). The Contribution of Agriculural Growth to poverty Reduction. Australia: ACIAR.
- Indonesian Farmers Deliberation Council. (2016). Evaluation of Agrarian, Rural, Agricultural and Food Policy 2016: Refletion and Policy Recommendations in 2017
- Leaman, Oliver. (2016). Economics and Religion or Economics Versus Religion: The Concept of An Islamic Economics. In Roger T. Ames & Peter D. Hershock (ed.) “Value and Valuesâ€. University of Hawai’i Press, 2015. Downloaded from 103.251.180.1 on Sat, 13 Feb.
- Putri, M. Andhita and Miranti Kartika Dewi. (2011). Developing Salam Based Financing Product: Indonesian Islamic Rural Bank. Business and Management Quarterly Review.2 (4). 103 – 112. 2011.
- Saleem, M. Yusuf.( 2013). Islamic Comercial Law. Singapore: John Wiley & Sons Singapore.
- Sumarto, Sudarsono and Asep Suryahadi. (2004). The Role of Agricultural Growth in Poverty Reduction in Indonessia. Muenchen: MPRA Paper No.60724.
- Suryahadi, Asep.,Gracia Hadiwidjaja and Sudarno Sumarto. (2012). Economic Growth and Poverty Reduction in Indonesia Before and After the Asian Financial Crisis. Working Paper . Jakarta: The SMERU Research Institute, June. DOI: https://doi.org/10.1080/00074918.2012.694155
- Wickramasinghe, Saifullah Syed and Hermanto Siregar.(2012).“The Role of Policies in Agricultural Transformationâ€. CAPSA Working Paper No. 106. Bogor, CAPSA-ESCAP.
- Zaman, Nazim and Mehmet Asutay. (2009). Divergence Between Aspirations and Realities of Islamic Economics: A Political Economy Approach to Bridging the Devide. Malaysia: IIUM Journal of Economics and Management 17, no. 1: 73-96.
References
Abric, J. (2001). A structural approach to social representations. Representations of the Social: Bridging Theoretical Traditions, 42–47.
Al-Jarhi, Mabid Ali.( 2001). Islamic Finance: An Efficient & Equitable Option, Islamic Research and training institute
Antonio, M. Syafi’i. (2001). Islamic Bank: Theori and Practice. Jakara: Gema Insani.
Askari, Hossein., Zamir Iqbal and Abbas Mirakhor. (2015).Introduction to Islamic Economics: Theory and Application. Singapore: John Wiley & Sons Singapore.
Asutay, Mehmet. (2012). Conceptualising and Locating teh Social Failure of Islamic Finance: Aspirations of Islamic Moral Economy vs the Realities of Islamic Finance. Asian and African Area Studies, 11 (2): 93-113.
Asutay, Mehmet. (2014). Searching for Ethics in Islamic Finance: Islamic Moral Economy Foundations. Islamic Finance & Ethics Society, SOAS, March. DOI: https://doi.org/10.5771/9783845258225_15
Budiantoro, Setyo. Luhur F. Martha and Muto Sagala.( 2015). Calculation of Indonesia Multidimensional Poverty Index 2012-2014. Prakarsa.
Cervantes-Godoy, D. and J. Dewbre. (2010). “Economic Importance of Agriculture for Poverty Reductionâ€, OECDFood, Agriculture and Fisheries Working Papers, No. 23, OECD Publishing. doi: 10.1787/5kmmv9s20944-en DOI: https://doi.org/10.1787/5kmmv9s20944-en
Christiaensen, Luc., Lionel Demery and Jesper Kuhl. (2010.) The (Envolving) Role of Agriculture in Poverty Reduction: An Empirical Perspective. Working Paper No. 2010/36. Finland: UNU-WIDER.
Fajar Adi.(2013). Analysis of Sharia Financing for Agricultural Sector Using Ba'i As Salam Agreement. Jakarta Faculty of Economics UI
Farida, (2016). Determinan of Microcredit Repayment. Buletin Ekonomi Moneter dan Perbankan, Volume 19, Nomor 1, Juli. DOI: https://doi.org/10.21098/bemp.v19i1.600
Grewal, Bhajan., Helena Grunfeld & Peter Sheehan. (2012). The Contribution of Agriculural Growth to poverty Reduction. Australia: ACIAR.
Indonesian Farmers Deliberation Council. (2016). Evaluation of Agrarian, Rural, Agricultural and Food Policy 2016: Refletion and Policy Recommendations in 2017
Leaman, Oliver. (2016). Economics and Religion or Economics Versus Religion: The Concept of An Islamic Economics. In Roger T. Ames & Peter D. Hershock (ed.) “Value and Valuesâ€. University of Hawai’i Press, 2015. Downloaded from 103.251.180.1 on Sat, 13 Feb.
Putri, M. Andhita and Miranti Kartika Dewi. (2011). Developing Salam Based Financing Product: Indonesian Islamic Rural Bank. Business and Management Quarterly Review.2 (4). 103 – 112. 2011.
Saleem, M. Yusuf.( 2013). Islamic Comercial Law. Singapore: John Wiley & Sons Singapore.
Sumarto, Sudarsono and Asep Suryahadi. (2004). The Role of Agricultural Growth in Poverty Reduction in Indonessia. Muenchen: MPRA Paper No.60724.
Suryahadi, Asep.,Gracia Hadiwidjaja and Sudarno Sumarto. (2012). Economic Growth and Poverty Reduction in Indonesia Before and After the Asian Financial Crisis. Working Paper . Jakarta: The SMERU Research Institute, June. DOI: https://doi.org/10.1080/00074918.2012.694155
Wickramasinghe, Saifullah Syed and Hermanto Siregar.(2012).“The Role of Policies in Agricultural Transformationâ€. CAPSA Working Paper No. 106. Bogor, CAPSA-ESCAP.
Zaman, Nazim and Mehmet Asutay. (2009). Divergence Between Aspirations and Realities of Islamic Economics: A Political Economy Approach to Bridging the Devide. Malaysia: IIUM Journal of Economics and Management 17, no. 1: 73-96.