AT: THE 6TH GLOBAL ISLAMIC MICROFINANCE FORUM – NAIROBI, KENYA ISLAMIC AGRICULTURE FINANCE: AN IDEAL MECHANISM TO FULFILL THE ALL CROPS/FARMER NEEDS PRESENTED BY: MR. JAMIL HASSAN MANAGING DIRECTOR/CEO TIJARAH MFB LIMITED BAUCHI, NIGERIA AT: THE 6TH GLOBAL ISLAMIC MICROFINANCE FORUM – NAIROBI, KENYA 8-9TH NOVEMBER, 2016 1

Importance of Islamic Agriculture Finance OUTLINE: Introduction Why Islamic Finance Importance of Islamic Agriculture Finance Critical Areas in Agric Financing Availability of Islamic Agriculture Finance in Africa Islamic Agriculture Finance Product Offering Limiting Factors Future Outlook 1

Introduction “There is none amongst the Muslims who plants a tree or sows seeds, and then a bird, or a person or an animal eats from it, but is regarded as a charitable gift from him.” --- Al Hadith narrated by Anas bin Malik (ra). The need for enhanced ethics in the pursuit of agricultural production is fundamental to ensuring the full participation of Muslim farmers. Ethics, in the provision of finance, land and human capital, would be essential to the long-term success of the global effort towards sustainable agriculture. 1

Why Islamic Finance It addresses the ethical problems associated with interest It facilitates adherence to the divine call It makes for better profits 1

Importance of Islamic Agriculture Finance Agricultural credit contributes to the development of agriculture in 3 basic ways; cover input/output gaps in production, credit rationing by banks due to imposition of ceiling on return from agric loans by government, augment inadequate farm savings. However, the dearth of financial products that are in tandem with the religious and social beliefs of the average Muslim farmer, have precluded financial inclusion in not only agric, but all facets of the rural economy of especially, Muslim majority countries. While agricultural finance contributes to the efficient use of factors of production and farm investment in the agric sector, Islamic agriculture finance could revolutionize the agric sector and guarantee sustainable growth of the rural economy. 5

Critical Areas of Islamic Agriculture Finance . .Production . Storage . Processing . Marketing .Research and Development .Bio-Fuel Development

Availability of Islamic Agric Culture Finance in Africa Many African countries practice some form of Islamic agric finance; however, Sudan has the most comprehensive Islamic Agric Finance practice. Egypt, Ethiopia, Kenya, South Africa, Gambia, Tunisia, Algeria, Tchad and Nigeria, have demonstrated increasing commitment and a growing appetite. Salaam and Murabaha are the most active modes at the moment. 1

Islamic Agriculture Finance Product Offering Murabaha A contract of sale where the seller discloses the cost of goods and his profit, could be used to purchase inputs in crop production Salam a sale contract where the seller receives payment now for the supply of specific goods to the buyer at agreed future date, could be used to finance farming overhead and augment working capital Ijarah Is a contract where the owner of asset other than consumables, transfers its usufruct to another person at an agreed rental for an agreed period, useful in financing farm mechanization or transportation Istisna’a A contract of sale at an agreed price where the buyer places an order to manufacture, assemble or construct the agreed asset to be delivered in future, it could be to provide farm infrastructure Diminishing Musharakah A partnership where profits are shared as per agreed ratio and losses are shared in the proportion of capital or investment, also for financing farm infrastructure and machinery Musawamah A sale based on bargain without reference to the original cost of the asset Musaqa’at A joint venture contract akin to Mudarabah, but only involves investment in economic trees Muzara’at A variant of Musharakah that focuses on agriculture and permits the pooling of resources to finance commercial farming 1

Limiting Factors to Islamic Agriculture Finance Limited number of Islamic banks and Takaful operators Fewer products on offer within the region Large numbers of excluded Muslim populations Difficulty in attracting foreign investment to the region Pervasive poverty amid high corruption perception Inadequate operational, managerial and jurisprudential skills 1

Future Outlook Need for a continental IBF strategy for Africa through sub-regional initiatives Focus on peculiar strengths of sub-regions and territories Massive investment in the areas of enlightenment, advocacy and capacity building Deliberate effort at breaking barriers to foreign participation Encourage, strengthen and deepen savings culture to build local capital on the long-run Improve local legislation to remove barriers to the entrenchment of IBF in Africa Encourage frequent engagement to facilitate convergence and standardization. 1

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