Islamic Finance Structure and Ethics Pairing Well With Green Agriculture
IIslamic finance is making further inroads in agricultural sectors globally. The trend is increasingly adopted and experts see that Islamic finance can help agriculture-based societies, or those in need for improvements in the sector, namely in Central and Westerns Asian countries, in Southeast Asia and in Sub-Saharan Africa, in a variety of ways.
Firstly, the impact of Islamic finance can be higher than that of other financial products due to its asset-based structure which can be applied in many fields, starting from the purchase of farming machines and equipment, seeds and pesticides, warehouses, as well as in the dairy, livestock and fishery sectors. Here, Islamic finance structures such as salam or istisna are ideal forward-financing transactions that can be adapted to crop or breeding cycles, while ijara contracts can be used for leasing or renting farm machines and other equipment. Other structures such as musharaka or mudaraba can be used for long-term developments such as rural housing, reforestation, irrigation or the like.
Secondly, Islamic finance can help broaden financial inclusion, particularly in Muslim agricultural societies that lack access to financial services by establishing cooperatives or partnership-based financing structures. This can improve access to financing for poorer farming communities, and also to microfinance for small businesses and agricultural entrepreneurs.
Thirdly, the ethical character of Islamic finance makes it a good fit for sustainable agriculture developments as it combines a stable ethical investment with an investment that promotes and aids the economic development of a farming community and the need for food security. This could include, for example, renewable energy projects such as biofuels.
Joel Bombardier