The State Bank of Pakistan (SBP) has developed a model product based on ‘Salam’ to meet the production finance (working capital) needs of the country’s farming community. The model product, developed in consultation with all the stakeholders, would facilitate Islamic Banking Institutions (IBIs) in improving the access of agricultural Islamic financing to the farming community.
The product covers the Sharia related aspects as well as business cycle and financing requirements of crop production activities, said an SBP circular Tuesday. The product based on ‘Salam’ i.e. sale of agriculture products against full payment in advance but deferred delivery on a specified future date, will give necessary flexibility to the farmers to use the funds to meet farming input requirements. The circular said, IBIs may adopt the model product in the present form or with some adjustments to suit their organisational and operational needs and market characteristics, subject to compliance with SBP regulations and approval from their Shariah Advisors.
It said, the IBIs had been advised to ensure that their relevant staff possesses the requisite knowledge and expertise about the product, adding they should also launch awareness campaigns through electronic and print media, seminars, workshops etc to ensure that their clients become fully educated about the product and become familiar with the requirements like documentation, loan limit, process flow/procedure, etc. According to the model product, the farmers at their discretion may enter into single or multiple ‘Salam’ transactions based on their specific funding needs. Under single ‘Salam’ the total funds needed by the farmer would be credited to the farmer’s account in lump sum. Whereas, under the multiple ‘Salam’ transactions the funds would be disbursed in tranches as and when needed by the farmer by executing various/multiple “Salam”. However, the circular said, the farmer would have the option to choose the single or multiple ‘Salam’ depending upon his/her convenience and preference.
“All farmers, tenants and growers involved in raising crops are eligible to get financing from IBIs under the scheme,” it said. Preferably, the quantity of the commodity to be purchased under ‘Salam’ may not exceed 75 per cent of expected production. “Salam” financing may be allowed as per cropping cycle, however, the financing is usually provided for a period of 6 to 8 months, except for sugarcane crop, which can go up to 18 months.
