islamic agri finance

8/8/2019 ISLAMIC AGRI FINANCE

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Asad MazhaerAsad Mazhaer

ISLAMIC AGRI FINANCEISLAMIC AGRI FINANCE

INSTITUTE OF BUSINESS & TECHNOLOGYINSTITUTE OF BUSINESS & TECHNOLOGY(BIZTEK)(BIZTEK)

GULSHAN CAMPUSGULSHAN CAMPUS


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INTRODUCTIONINTRODUCTIONISLAMIC REPUBLIC OF PAKISTANISLAMIC REPUBLIC OF PAKISTAN

Area= 795,096 sq.kmArea= 795,096 sq.km

Population = 180 millionPopulation = 180 million

Capital city: IslamabadCapital city: Islamabad

Religion:97% Muslims, 3%Christians and HindusReligion:97% Muslims, 3%Christians and Hindus

Government: Federal RepublicGovernment: Federal Republic Head of State: Asif Ali ZardariHead of State: Asif Ali Zardari

Head of Government: Prime Minister Yousaf Raza GillaniHead of Government: Prime Minister Yousaf Raza Gillani

Real GDP Growth Rate: 5.8%Real GDP Growth Rate: 5.8%

Annual Per Capita Income:US$1,085Annual Per Capita Income:US$1,085

Legal System: Common LawLegal System: Common Law Major Industries: Textile, Sugar, Vegetable Oils, Agricultural Products,Major Industries: Textile, Sugar, Vegetable Oils, Agricultural Products,

Cement, Fertilizers, Steel, Chemicals, Sporting Goods, Carpets.Cement, Fertilizers, Steel, Chemicals, Sporting Goods, Carpets.

Major Trading Partners: USA, China, Japan, UK, Germany, SaudiMajor Trading Partners: USA, China, Japan, UK, Germany, SaudiArabia,UAE.Arabia,UAE.


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ClimateClimate

Pakistan enjoys a considerable measurePakistan enjoys a considerable measureof variety of Climate North and northof variety of Climate North and north

western high mountainous ranges arewestern high mountainous ranges areextremely cold in winter while months ofextremely cold in winter while months ofApril to September are very pleasant.April to September are very pleasant.The plains of the Indus valley areThe plains of the Indus valley are

extremely hot in summer with a cold andextremely hot in summer with a cold anddry weather inwinter.The coastal strip indry weather inwinter.The coastal strip inthe South has a moderate climatethe South has a moderate climate


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The Backbone of Pakistans Economy.The Backbone of Pakistans Economy.

Agriculture is the mainstay of Pakistan'sAgriculture is the mainstay of Pakistan'seconomy.economy.

Nearly 21% of total output (GDP)Nearly 21% of total output (GDP)

44 percent of total employment is44 percent of total employment isgenerated in agriculture.generated in agriculture.

It also contributes substantially toIt also contributes substantially toPakistan's exports.Pakistan's exports.


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MAJOR CROPSMAJOR CROPS

Cotton WheatCotton Wheat


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Land Utilization (Million hectare)Land Utilization (Million hectare)

S.NOS.NO AREAAREA 20042004--0505 20052005--0606 20062006--0707 20072007--0808

1.1. Geographical AreaGeographical Area 79.6179.61 79.6179.61 79.6179.61 79.6179.61

2.2. Reported AreaReported Area 57.0657.06 57.2257.22 57.2557.25 57.2557.25

3.3. Not available for Not available forcultivationcultivation

22.8122.81 22.8822.88 22.7022.70 22.7022.70

4.4. Agricultural LandAgricultural Land 34.2534.25 31.0831.08 31.0331.03 31.0331.03

5.5. Forest AreaForest Area 4.014.01 4.034.03 4.204.20 4.204.20

6.6. Arable LandArable Land 30.2430.24 22.0522.05 22.0322.03 22.0322.03

7.7. Cultivable WasteCultivable Waste 8.178.17 8.128.12 8.328.32 8.328.32

8.8. Total cultivated areaTotal cultivated area 22.0722.07 29.629.6 29.429.4 29.429.4

9.9. Current FallowCurrent Fallow 6.436.43 6.476.47 6.446.44 6.446.44

1010 Net Area SownNet Area Sown 15.6415.64 15.5815.58 15.5915.59 15.5915.59

1111 Area Sown MoreArea Sown Morethan Oncethan Once

7.007.00 7.557.55 7.927.92 7.927.92

1212 Total Cropped AreaTotal Cropped Area 22.6422.64 23.1323.13 23.5123.51 23.5123.51


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Area Under Major Crops (000Area Under Major Crops (000

HectaresHectares))CROPSCROPS 20032003--0404 20042004--0505 20052005--0606 20062006--0707 20072007--0808WheatWheat 19,50019,500 21,61221,612 20,48620,486 21,29521,295 21,74921,749

RiceRice 4,8484,848 5,0255,025 5,5475,547 5,5885,588 5,5635,563SugarcanSugarcanee

53,41953,419 47,24447,244 44,66544,665 54,74254,742 63,92063,920

Cotton(00Cotton(00

0Tonnes)0Tonnes)

1,7091,709 2,4262,426 2,1072,107 2,1972,197 1,9821,982

(000 Bales(000 Bales 10,04810,048 14,26514,265 12,38812,388 12,85812,858 11,65511,655

MaizeMaize 1,8971,897 2,7972,797 3,5623,562 3,0883,088 3,3173,317


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Yield Per Hectare of Major CropsYield Per Hectare of Major Crops

(Kg/Hectare)(Kg/Hectare)CROPSCROPS 20032003--0404 20042004--0505 20052005--0606 20062006--0707 20072007--0808

WheatWheat 2,3732,373 2,5862,586 2,4662,466 2,7162,716 2,5852,585

RiceRice 1,9701,970 1,9941,994 2,1162,116 2,1072,107 2,2122,212MaizeMaize 2,0032,003 2,8482,848 3,2863,286 3,0363,036 3,2643,264

SUGARSUGARCANECANE

49.749.7 48.948.9 49.249.2 53,19953,199 51,07751,077

COTTONCOTTON 572572 760760 679679 711711 649649


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This mode of financing can be used by the modern banksand financial institutions especially to finance the

agricultural sector .

In SALAM, the seller undertakes to supply specific goodsto the buyer at a future date in exchange of an advancedprice fully paid at spot.

The price is in cash but the supply of purchased goods isdeferred.

SalamSalam


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Conditions of SalamConditions of Salam

1.1. Only those goods can be sold through a SalamOnly those goods can be sold through a Salamcontract in which the quantity and quality can becontract in which the quantity and quality can beexactly specifiedexactly specified

e.g.e.g. precious stones cannot be sold on the basis ofprecious stones cannot be sold on the basis ofSalam because each stone differ in quality, size,Salam because each stone differ in quality, size,weight and their exact specification is not possible.weight and their exact specification is not possible.

2.2. Salam cannot be effected on a particular commoditySalam cannot be effected on a particular commodityor on a product of a particular field or farmor on a product of a particular field or farm

e.g.e.g. Supply of wheat of a particular field or the fruitSupply of wheat of a particular field or the fruitof a particular tree since there is a possibility that theof a particular tree since there is a possibility that the

crop is destroyed before delivery and given suchcrop is destroyed before delivery and given such


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Conditions Of SalamConditions Of Salam

cont.cont.3. The exact date and place of delivery must be3. The exact date and place of delivery must bespecified in the contractspecified in the contract

4. The commodity for Salam contract should remain in4. The commodity for Salam contract should remain in

the market right from the day of contract up to the datethe market right from the day of contract up to the dateof delivery or at least till the date of delivery.of delivery or at least till the date of delivery.

5.5. A security in the form of a guarantee, mortgage orA security in the form of a guarantee, mortgage orhypothecation may be required for a Salam in order tohypothecation may be required for a Salam in order to

ensure that the seller delivers.ensure that the seller delivers.

6. Since price in Salam is generally lower than the price6. Since price in Salam is generally lower than the pricein spot sale; the difference in the two prices may be ain spot sale; the difference in the two prices may be avalid profit for the Bank.valid profit for the Bank.


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Benefits of SalamBenefits of Salam Benefits:Benefits:

There are two ways of benefiting from the contract of Salam:There are two ways of benefiting from the contract of Salam:

After purchasing a commodity by way of Salam, the financialAfter purchasing a commodity by way of Salam, the financialinstitution can sell it through a parallel contract of Salam for theinstitution can sell it through a parallel contract of Salam for thesame date of delivery. The period of Salam in the second parallelsame date of delivery. The period of Salam in the second parallel

contract is shorter and the price is higher than the first contract. Thecontract is shorter and the price is higher than the first contract. Thedifference between the two prices shall be the profit earned by thedifference between the two prices shall be the profit earned by theinstitution. The shorter the period of Salam, the higher the price andinstitution. The shorter the period of Salam, the higher the price andthe greater the profit. In this way institutions can manage their shortthe greater the profit. In this way institutions can manage their shortterm financing portfolios.term financing portfolios.

The institution can obtain a promise to purchase from a third party.The institution can obtain a promise to purchase from a third party.This promise should be unilateral from the expected buyer. TheThis promise should be unilateral from the expected buyer. Thebuyer does not have to pay the price in advance. When thebuyer does not have to pay the price in advance. When theinstitution receives the commodity, it can sell it at a preinstitution receives the commodity, it can sell it at a pre--determineddeterminedprice to a third party according to the terms of the promiseprice to a third party according to the terms of the promise..


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Parallel SalamParallel Salam In an arrangement of parallel Salam there must be twoIn an arrangement of parallel Salam there must be two

different and independent contracts; one where the bankdifferent and independent contracts; one where the bankis a buyer and the other in which it is a seller. The twois a buyer and the other in which it is a seller. The twocontracts cannot be tied up and performance of onecontracts cannot be tied up and performance of one

should not be contingent on the other.should not be contingent on the other.

A Salam arrangement cannot be used as a buy backA Salam arrangement cannot be used as a buy backfacility where the seller in the first contract is also thefacility where the seller in the first contract is also the

purchaser in the second. Even if the purchaser in thepurchaser in the second. Even if the purchaser in thesecond contract is a separate legal entity, but owned bysecond contract is a separate legal entity, but owned bythe seller in the first contract; it would not tantamount tothe seller in the first contract; it would not tantamount toa valid parallel Salam agreement.a valid parallel Salam agreement.


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THANK YOUTHANK YOU

islamic agri finance

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