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SBP issues guidelines on ‘Islamic Agriculture Finance’

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Points of Essence:

  • The State Bank of Pakistan has issued a draft guidelines on Islamic Agriculture Finance to facilitate agriculture financing.
  • The guideline covers Islamic modes of financing i.e ‘Murabaha, Ijara, Musawamah, Salam, Istisnaa, Musharakah, Diminishing Musharakah, Mudarabah, Musaqaat, and Muzaraat’ to finance farm and non-farm sector activities including livestock, fisheries, poultry, orchards etc.
  • It applies to Islamic banks and conventional banks with Islamic windows they they could develop their own products to meet the financing needs of agri and rural community in a Shariah-compliant manner.
  • The State Bank of Pakistan is a Council and Full member of the Islamic Financial Services Board.

KARACHI: The State Bank of Pakistan (SBP) issued draft guidelines on ‘Islamic Agriculture Finance’ on Monday aiming at facilitating Islamic banks as well as conventional banks involved in agriculture financing.

A Task Force constituted by governor SBP, on ‘Islamic Agricultural Finance’ has prepared draft guidelines. The Task Force comprised of senior SBP officials, Shariah Advisors and heads of agriculture departments of commercial banks. The draft guidelines broadly cover Islamic modes of financing like ‘Murabaha, Ijara, Musawamah, Salam, Istisnaa, Musharakah, Diminishing Musharakah, Mudarabah, Musaqaat, and Muzaraat’ that can be used for meeting the financing requirements of farm and non-farm sector activities including livestock, fisheries, poultry, orchards etc.

The draft guidelines also cover Islamic financing for production purposes like working capital and term finance for purchase of agri implements, farm mechanisation and development, transportation, etc. The application and procedure to be adopted under each Islamic mode of financing for agriculture have also been provided in the guidelines to facilitate the implementation of the guidelines.

The guidelines will facilitate Islamic Banking Institutions (IBIs), particularly those, which are extending their branch network and outreach in the rural areas, to develop their own products to meet the financing needs of agri and rural community in a Shariah-compliant manner. These guidelines also suggest that the conventional banks with Islamic Banking Branches (IBBs) may offer these products through Islamic Banking Windows by using their conventional branch network.

It may be mentioned here that the farming community at various platforms and individually have always been demanding Islamic financing for agriculture purposes. However, there is lack of awareness of Islamic Modes of Financing among conventional agri financing bankers and IBIs are also naive to the requirements and business cycles of agriculture sector.

SBP is playing an active role in developing an enabling environment for agricultural financing through conventional banking system and at the same time is committed to support the development of Islamic Banking in the country. The initiatives of SBP have paid dividend in the form of robust increase in agricultural credit disbursements from Rs 39 billion in FY 2000 to Rs 212 billion in FY 2008. Islamic banking is also robustly expanding in the country and almost all major conventional banks have opened their stand-alone IBBs in addition to six full-fledged Islamic banks operating in the country. So far 313 branch licences have been issued in the country. IBIs are expanding their network in rural areas through separate branches and windows. staff report

Source: http://www.dailytimes.com.pk

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Written by Suapi Shaffaii

September 2, 2008 at 3:24 am

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