March 15, 2018 | Author: Anonymous | Category: Documents
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All these questions will be analyzed and answered in this paper based on views given by Muslim jurists and fiqh scholars...



Muhammad Ridhwan Ab. Aziz

Universiti Sains Islam Malaysia


The Islamic law ( fiqh)  fiqh) concerns all aspects of religious, social and economic life of  human being. Besides religious observances ( Ib ( Ibad at ), ), this legal law seeks to regulate the instit instituti utions ons of family family,, marria marriage, ge, inherit inheritanc ance, e, proper property ty relatio relations, ns, econom economic ic contracts contracts and obligation obligationss as well as land tenure system. system. The problems problems of land tenure system and land development have been discussed copiously in the early  fiqh literary sources in Islam. Thus, this paper tries to analyze various contracts of cultivation from the perspective of Islamic Commercial law as well as Islamic financing available in Islam Islamic ic bank bankin ing g insti institu tuti tion onss in Mala Malays ysia ia for for land land deve develo lopm pmen entt proj projec ect. t.  The

methodology of research in this paper is through document analysis, interviews with relevant Islamic bank officers and observation from pamp pamphl hlet ets s and and webs websit ites es of sele select cted ed Isla Islami mic c bank banks. s. The The find findin ing g shows that there are plenty of opportunities available for Muslim in this country in order to embark in the land cultivation and land development projects based on Shariah compliant Islamic financing arrangements. Keywords: Al-Musaqat, al-Muz ara’ ah, ah, Bay’ al-Salam.



The land tenure system and land development method in Islam are considered as one of the many ways to increase food supply and food production for the benefit of Muslim society at large. Yet, the accurate implementation of this method and contra contract ct will will ensure ensure positi positive ve effects effects to the social social aspect aspect in the peasan peasant-la t-landl ndlord ord relationship as well as in the economic side by increasing hal al sourc l  sourcee of earning to the Muslim community through the land development and agriculture attempts.

Islam has mandated methods for the working of land in order to ensure that land is fully used rather than remains idle or uncultivated. As such, there are number  of questions need to be solved such as what is the precise method or contract that shou should ld be used used by Musl Muslim im in orde orderr to deve develo lop p thei theirr land land and and what what are are the the opportunities given to them by the Islamic banking institutions in order for them to  pursue their agro projects?

All these questions will be analyzed and answered in this paper based on views given by Muslim jurists and  fiqh scholars from the perspective of Islamic Commercial law as well as data and information given by officers of selected Islamic Banking institutions in Malaysia.

1. Contracts of Land Revival in Fiqh Muamalat .

In the Islamic commercial commercial law, there are three types of contracts with regards of land cultivation and development as follows: 2

a) Al-Musaqat.

 Al-Musaqat  (par (partn tner ersh ship ip in mana manage geme ment nt)) liter literall ally y mean meanss irrig irrigat atin ing g or  watering, from the root word of  “Saqa” (Ibn Manzur, 2003). The resident of  Madinah nah has has name named d al-Musaqat  as alal- Mu  Mu’amalah (Ibn Qudam Qudamah, ah, 1972) 1972). Scholars from Hanbali school have listed the contract of  al-Musaqat  as a kind of   partnership.

From the  fiqh terminology, al-Musaqat  refers to a type of submitting land contra contract ct toward towardss cultiv cultivato atorr or worker worker (person (person who manage managess the cultiv cultivati ation) on) with with return in produce. In other words, al-Musaqat  means a contract with remuneration  based upon the crops production. It is a contract of submission of land by crop owner  to the cultivator or guardian who involves in the jobs such as reviving, irrigating and other relevant jobs according to the specific conditions and will be allocated return  based on crops produce (Abu al-Naja al-Hajjawi, 1999).

Furthermore, Majallah Furthermore, Majallah al-Ahk am al-Adl i yyah  yyah defines al-Musaqat as t as a kind of   partnership on the terms that trees are to be found by one, and cultivation by the other, and that the fruit produced is to be shared between them ( The Mejelle, Mejelle, 2001).

Majority of ulam of ulama’ (Malik i, Shafi’i and Hanbali) view that the contract of alof  al Musaqat  is legal based on certain circumstances ( al-Shafi’i, 1961). Their views are based on the practice of  al-Musaqat  by Prophet Mu hammad (s.a.w.) .a.w.) himself. Prophet Muhammad (s.a.w.) .a.w.) said:


“The Prophet ( s.a.w.) made a deal with the people of Khaybar that they would have half the fruits and vegetation of the land they cultivated”.

(Bukhari and Muslim)

In this regard, perhaps the crop c rop owner has no skills for managing his own farm or he has no time in handling it by his own and at the same time, person who has skills and time has no farm for cultivation. At this point, both parties are needed each other for the crop cultivation, the owner needs cultivator and vice verse. Thus, this shows that the contract of  al-Musaqat  is truly desired and needed (Ibn Qudamah, 1972).

According to Ibn Qayyim (d.1350), the story of Khaybar is a proof for the validity of the contract of al-Mus of al-Musaqat and t and al-Muz ara’ ah ah with the specific distribution of the fruit produce. This activity is continued until today without any annulment (nasakh) nasakh) by the Prophet Mu hammad (s.a.w.). .a.w.). This activity was carried on by the Caliphate al-Ra shid in and was not included as a part of contract of  al-Ijarah but instead, in the contract of partnership, similar to the contract of al-Mu of al-Mudarabah. rabah.

Ibn Juzayy (d.1357) from M alik i school of  fiqh of  fiqh pointed  pointed out that this contract is legitimate except in the case of ambiguous leasing and selling of non-existence good goods. s. Yet, Yet, accor accordi ding ng to Abu Yusuf suf (d.7 (d.798 98), ), the the cont contra ract ct of  al-Musaqat  is  permissible ( J   J aiz ) as the contract of  al-Mudarabah. rabah. To him, whoever says that this contract is void, he actually devastating the land and whoever permits this kind of  contract, he actually permits the land to be expanded and grew.


Furthermore, Imam Shafi’i (d.820) of the opinion that the contract of  al Musaqat  is valid, similar to the contract of  al-Muz ara’ ah ah when they happen in subordination to the former as, for instance, where the fruit trees grow in fertile and clean ground, which is watered for the nourishment of the trees, and the owner directs the cultivator to sow a crop on the ground on condition that he shall get share like one half of the produce.

The essence for  al-Musaqat  contract according to the majority of  ulama’  (Shafi’i, Hanbali and Malik i) can be classified into five, as below (Mustafa al-Khin, 1992):

i) Parties in the Contract.

The al-Musaqat contra t  contract ct must be done by persons who are eligible eligible to join in the contract of property such as have sound minds and they are puberty ( bul u gh).  gh). The reason is that al-Musaqat is t  is a form of contract, which involves the use of property or  al-Mu’amal at al-M al . As such such,, pers person onss who who are are not not qual qualifi ified ed to mana manage ge thei their  r   properties cannot participate in this contract. In some cases, a guardian (wal i) may represent child, insane or dumb persons in this kind of contract.

ii) Source of Partnership.

According to jurists from Shafi’i school, the originality for this contract is date date and grape grape fruits. fruits. Meanwh Meanwhile ile,, ulama’  from Hanbali school school regard regardss that that the originality of this contract is fruit plant that requires a form of management by the cultivator or tiller who will gain a division of fruit produce. This partnership will


nullify unless the contract specify the particular tree. If the tree is unclear and cannot  be identified thus, this contract will void.

iii) Fruit.

Distribution of fruit produce for each party has to be clearly defined, between owner and cultivator. All the fruits produce from the orchard is regarded as the  production in this contract and must be divided equally between both parties. It is considered considered as null if only one party receives all of the fruits produce. produce. Therefore, Therefore, it is stipulated that both parties obviously understand and agree upon the distribution of  the produce such as 50 to 50, 40 to 60 or 70 to 30 or etc.

iv) Job.

The cultivator is given fully control over his work. This includes the entire scop scopee of manag anagin ing g the the orch rchard ard for for inst instan ance ce,, how, how, when hen and and meth ethods ods of  accomplishing his jobs. If in any case that the contract has stipulated the landlord to  be join along in the management jobs, this type of  al-Musaqat contract t contract is regarded as null and void.

v) Word Expression ( Si ghah)  ghah) of Contract.

The The word word expr expres essio sion n of this this cont contrac ractt can can be done done by the the lando landown wner er or  cultivator such as the cultivator says to the owner “I will manage your orchard with the distribution of fruit produce of 30 to 70 or 40 to 60”. Otherwise, the owner says to the cultivator “I surrender this orchard management to you with produce sharing contract” or “I cede you my plantation to be taken care of” or any similar of wording. The most important thing is that these word expressions are not in the form of hiring 6

since jurists from Sh afi’i school of the view that the word expression of hiring cannot  be used for this kind of contract.

ah.  b) Al-Muz ara’ah.

 Al-Muz ara’ ah ah (par (partn tner ersh ship ip in agric agricul ultu ture re)) lite literal rally ly mean meanss plan planti ting ng of  something, from the root word of “ zara “ zara’ a”. From the fiqh the  fiqh terminology, al-Muz ara’ ah ah refers to an agricultural compact between land possessor and cultivator. This contract also means cede of land and seed to the cultivator while produce of the orchard is divided for both parties in the contract (landlord and cultivator) (Mustafa al-Khin, 1992).

Yet, ulama’  from Malik i school school of Islamic Islamic law define definess al-Muz ara’ ah ah as contract of sharing in agriculture. Imam al-Shafi’i (d.820) defines this contract as a compact between landlord with others in planting and taking care of crop, whereby the landlord provides the seeds and the fruit produce will be divided between them at agreed ratio. Moreover, jurists from Hanbali school refer al-Muz  refer  al-Muz ara’ ah ah as a contract contract of submitting land to the cultivator and both parties are involved in the plantation  project.

Accordi According ng to  Majallah al-Ahk am al-Adl  al-Adl i yyah,  yyah, cont contrac ractt of  al-Muz ara’ ah ah refers to a kind of partnership, where the land comes from one, and the work from the other, i.e., a partnership to cultivate, and divide the crops.

Most of the ulama’ permit the contract of al-Muz  of  al-Muz ara’ ah. ah. This view is justified  by a had ith narrated by Ibn Umar. Prophet Mu hammad (s.a.w.) .a.w.) said to the effect: 7

“The Prophet ( s.a.w.) made a deal with the people of Khaybar that they would have half the fruits and vegetation of the land they cultivated”.

(Bukhari and Muslim)

According to jurists from Hanaf i school of Islamic law, the essence for the contract of al-Muz  of  al-Muz ara’ ah ah is proposal ( I j  jab) and acceptance (Qab (Qabul ). ). Landlord offers to the cultivator by saying “I submit this land to you for sharing project”. The cultivator replies by saying “I accept your proposal” or “I like with your offer” or any other words that show an acceptance for the compact. When these two essences exist, the contract is effective.

The contract of  al-Muz ara’ ah ah may be terminated either by the completion of  the project or it may be terminated before the completion completion of the project as below (alKasani, 1974):

i) The Expiry of Period.

Contract of  al-Muz ara’ ah ah will be terminated when the period of the contract ended. The ending of the contract happens when all the crop produce be divided corresponds with the agreement and the agreed conditions by both parties.

In the case when the period of the contract ended but the aim of the project still unattained (the tree still green and bears no fruit), the period of the contract should should be prolonged prolonged until the tree bears fruit and ripe. This attempt tries to celebrate celebrate and satisfy both parties in the contract as much as it can be. 8

ii) One of the Parties in the Contract Has Deceased.

The contract of  al-Muz ara’ ah ah will be terminated when one of the parties in the contract was dead even though the cultivation job has been started or not, or the  project has borne fruit or not. In the case when the dead person was the landlord and the project is not yet producing anything thus, the cultivator or his heir still obliged to carry on with the job they has agreed. This is because the contract has placed the responsibility upon the cultivator to complete his duty from the beginning until the end of the contract.

iii) Termination by Proof.

In the case when there is an annulment of the contract before the project even started hence, the contract contract will be terminated. terminated. Ulama’ from Hanaf i school view that the availability of one party to provide seed does not mean that he will be participated in the joint project. According to M alik i’s jurists, the contract of al-Muz  of  al-Muz ara’ ah ah is not  binding unless the relevant jobs have been started. Therefore, contract that is not yet  been started can be cancelled.

c) Bay’ al-Salam.

The term Salam forms the irregular verbal noun of the fourth declension of the Arabic root Salima, Salima, meaning to deliver up. The term means advance payment or  forward buying. Bay’ buying.  Bay’ al-Salam is also known as Bay’ as  Bay’ al-Salaf and al-Salaf and it is included under  the category of sale ( Bay’ ). ).


From the fiqh the  fiqh terminology, Bay’ terminology,  Bay’ al-Salam is the sale of a thing, which will be delivered to the purchaser on a future date. That future date must be set at the time of  the contract. In other words,  Bay’ al-Salam refers to a sale of an object, which is not available at the time of the conclusion of the sale, but will be delivered in the future or  a fixed future date. The price is, however, however, to be paid immediately during during the session of the contract (Abd al-Sami’ al-Misri, 1975).

According According to  Majallah al-Ahkam al-Adliyyah, al-Adliyyah ,  Bay’ al-Salam is to sell a deferred payment for a present payment, that is to say, to buy a thing to be delivered at a future time, by a payment of money in cash.

Besides, Besides, scholars from Shafi’i and Hanbali schools schools of Islamic Islamic law define this contract as a contract of specific goods in liability and the price of the goods is received in the session of contract ( Majlis al-Aqd ). ). In this contract, the buyer is called  Rab al-Salam, al-Salam, the seller is  Muslam ilayh, ilayh, the cash price is  Ra´s al-Mal  and the  purchased commodity is termed as Muslam as Muslam fih (Wahbah al-Zuhaili, 2006).

The legality of  Bay’  Bay’ al-Salam contract is mentioned in the Quran, al-Hadith as well well as cons consen ensu suss of  ulama’  ( Ijma’   Ijma’ ). ) . In fact, fact, the the cont contrac ractt of  Bay’ of  Bay’ al-Salam is authorized and rendered legal by a particular passage in the Quran and al-Hadith of  Prophet Muhammad ( s.a.w.).  s.a.w.). In the Quran, Quran, there is a verse that discusses with regards of loan contract, as Allah ( s.w.t .) .) says to the effect:

“O ye who believe! When ye deal with each other, in transactions involving   future obligations in a fixed period of time, reduce them to writing”. writing”.

Al-Baqarah (2):282. 10

Ibn Abbas in elaborating this verse had said: “ I witness that the contract of alSalam (with a guarantee in the specific date) has been allowed by Allah (s.w.t.) in his revelation and has approved on it”. it” . He then recited the verse.

In a hadith, hadith, narrated by Ibn Abbas, when Prophet Muhammad ( s.a.w ( s.a.w.) .) arrived at Madinah, the resident of Madinah at that time exercising the contract of  al-Salam on fruits for the duration of one, two and three years.

In this regards, he ( s.a.w.)  s.a.w.) said:

“Whoever wishes to enter into a contract of Salam, he must effect the Salam acco accord rdin ing g to the the spec specif ified ied meas measur uree and and the the speci specifi fied ed weig weight ht and and the the  specified date of delivery”.

(Bukhari and Muslim)

Based on this hadith, Bay’ al-Salam was allowed by the Holy Prophet ( s.a.w ( s.a.w.) .) subject subject to certain conditions conditions.. The basic purpose purpose of this sale was to meet the needs of  the small farmers who needed money to grow their crops and to feed their family upto the time of harvest. harvest. After the prohibition prohibition of  riba, riba, they could not take usurious usurious loans. Then, it was allowed for them to sell the agricultural products in advance.

Furthermore, based on their consensus, ulama’ have ulama’ have authorized the contract of   Bay’ al-Salam. Their argument are that people needs this type of contract since owner  of crops, fruits or businesses require some expenditures expenditures for themselves themselves and for their  crops up to the harvesting period. It is to be observed that  Bay’ al-Salam contract is contrary to the ordinary rules of sale, which forbids sales of a non-exist article, but 11

 because of its necessity in the business and economic, this kind of contract has rendered lawful especially in helping farmers and their activities (Ibn Abidin, 1979).

The essence for  Bay’  Bay’ al-Salam contract is offer ( Ijab)  Ijab) and acceptance (Qabul  (Qabul ). ). According to Hanafi, Maliki and Hanbali schools of  fiqh of   fiqh,, the contract of  Bay’ of  Bay’ alSalam can be made either in the expression of sale or  Salam. Salam. For instance, instance, one party says “I book this item from you” and being accepted by another party by saying “I accept”, or by any other expression such as “I sell the goods to you at price of RM50” and be accepted by other party.

Meanwhile, jurists from Shafi’i school of Islamic jurisprudence and Zufar of  the opinion that the contract of Salam of  Salam cannot happen unless by using the Salam words or expression based on the analogy (Qiyas ( Qiyas). ). Therefore, the contract of  Salam will nullify because of selling of non-existed article. The permissibility of this contract in the Shariah is based on the Salam expression only.

Besides, Shafi’i’s jurists of the two views regarding this matter. Some of them opine that the contract of Salam of  Salam is nullified when using the ordinary sales expression,  because if the contract is valid, it is regarded as similar to the ordinary sales sale s contract, which in reality it is not. Nonetheless, some of them argue that using the ordinary sales expression in the Salam contract is still lawful because it is considered as a type of sales, which requires a form of acceptance in the session of contract. Thus, it can  be done by using the sales words as in the case of transaction for the currency exchange.

Muslim jurists from four schools of Islamic jurisprudence unanimously agreed that the contract of  Bay’ of  Bay’ al-Salam is valid when fulfilling six conditions below (Ibn Rushd, 1995): 12


The at attribute of of th the ar article is wel welll de defined.

ii) ii)

The type type of the the art artic icle le is clea clearl rly y men menti tion oned ed..

iii) iii)

The The qua quant ntit ity y of of the the arti articl clee is is wel welll rec recog ogni nize zed. d.

iv) iv)

The The del deliv iver ery y tim timee of of the the arti articl clee is is sta state ted d cle clear arly ly..


The The pri price ce of the the art artic icle le is well well kno known by both both part partie ies. s.

vi) vi)

The The pla place ce for for the the deli delive very ry of the the art artic icle le is well well unde underst rstoo ood. d.

They They also unanimou unanimously sly agreed agreed that that the contrac contractt of  Salam is valid for all measured and weighted goods and crops such as coconut, almond, egg and etc.  Nevertheless, they are in argument in terms of conditions with regards of price, article or goods of the contract and the issue of withdrawing half or some of the booked or  reserved article in the contract.

a) Condition with regards of Price.

Scholars from Hanafi school of Islamic law precisely fixed six conditions with respect of price in the contract of  Bay’  Bay’ al-Salam as follows:


Defining ty type of of th the ar article ei either in in th the fo form of  of  Dinar or   Dinar or  Dirham  Dirham or  in the form of measurable goods such as wheat and barley, or in the form of weighted items like cotton, iron and etc.


Clari arifying typ type of th the cur currency if a pa particular cou country has has vari vario ous kinds of currencies in circulation.

iii) iii)

Just Justif ifyi ying ng natu nature re of the the art artic icle le eith either er in good good,, fai fairr or or poo poorr qua quali lity ty.. 13

The clarification of these three matters is very imperative in order to avoid any ignorance ( Jahalah)  Jahalah) in the contract of  Bay’ of  Bay’ al-Salam. al-Salam. Any ignorance in the nature, type or form of article in this contract may lead to incoherent and conflict, which may nullify the contract.


Defining the the rat rate or pr price val value of the the ite item in me measurement or  weight scale. Therefore, when a person says “I book this wheat”, without clarifying the rate of weight or measure, then this contract is invalid because of the ignorance of the quantity and price value for  the item.


According to Abu Hanifah, th the currency of  of  Dinar or   Dinar  or  Dirham  Dirham should  be inspected since any conflict and fighting because of ignorance will nullify the contract.

vi) vi)

The cash cash or cap capit ital al shou should ld be pai paid d in in adv advan ance ce and and bei bein ng acc accep epte ted d in in the session of contract, before both parties separated. If the both  parties separated before payment is made thus, the contract is invalid. This is because the word of  al-Salam in Arabic language means the delivery of price in advance then, if the price is delivered in future date, the original meaning of  al-Salam is no longer accurate and the contract become invalid.

 b) Conditions for the Subject/Article in the Contract.

Ulama’ from Ulama’  from Hanafi school of Islamic law has fixed eleven conditions for the  booked or reserved items in the contract of  Bay’  Bay’ al-Salam as below: 14


Type Type of the the sub subje ject ct is clea clearr suc such h as as whe wheat at,, bar barle ley, y, rice rice and and etc etc..

ii) ii)

SubSub-ty type pe of the the sub subje ject ct is is als also o cle clear ar such such as fiel field d whe wheat at or hill hill wheat wheat or  etc.

iii) iii)

Natu Nature re of of the the subj subjec ectt is clear clear eith either er in in good good,, fair fair or or poo poorr qual qualit ity. y.

iv) iv)

Rate Rate or or quan quanti tity ty of of the the subj subjec ectt is wel welll defi define ned d eith either er thr throu ough gh wei weigh gh or  or  any measurement. This is important to be clarified in order to eliminate the the aspe aspect ct of igno ignora ranc ncee in the the cont contra ract ct sinc sincee it may may prod produc ucee dissatisfaction and conflict between parties in the contract, which may nullify the contract totally.


The The exch exchan angi ging ng ite item m shou should ld not not be be invo involv lved ed with with any any ele eleme ment nt of  of  Riba  Riba al-Fadl namely al-Fadl  namely the equivalent of value or type (gold with gold). If so, this this cont contrac ractt is cons consid ider ered ed invo involv lvee with with riba, hich has been een riba, which  prohibited in Islam. If the equivalent of value or type does not exist i.e. there is a different between the subject and the price of the contract such as sale of wheat with money or rice with  Dirham thus, thus, the contract of  Bay’  Bay’ al-Salam is lawful.

vi) vi)

The The subje subject ct of the the contr contrac actt can be dif diffe fere rent ntia iate ted d easil easily. y. If the the subj subjec ectt cannot be differentiated, then the subject cannot be booked in the case of  Dinar and  Dinar  and Dirham  Dirham,, whereby these two items are saleable items and cannot be differentiated in the exchanging contract.

vii) vii)

The book bookin ing g item item sho should uld be deliv eliver ered ed in futu future date date.. Sch Scholar olarss of  different views with regards of this condition. Jurists from Hanafi, 15

Maliki and Hanbali schools of the views that in order to make this contract valid, the delivery of the subject should be deferred. It is not valid to make the booking contract in spot.

viii viii))

Type Type of the the booki booking ng item item is sold sold in the the marke markett namel namely y simil similar ar in type type and nature of the item as in the contract, from the beginning of the contract (session of contract) until the delivery time of the goods.

ix) ix)

The con contrac tractt shou should ld be defin efinit ite. e. The The defin efinit itee con contrac tractt mean meanss the the contract does not has option ( Khiyar ) for both parties.


Clar Clarif ifyi ying ng the the pla place ce or or loca locati tion on for for del deliv iver ery y of the the ite item. m. Acc Accor ordi ding ng to to Abu Hanifah, if the delivery of the item needs extra expenditure or  extra cost and the item is very difficult to be carried such as wheat and  barley, the location for the delivery needs to be specified in order to make this contract valid.

xi) xi)

The The item item in in the the cont contra ract ct can can be be defi define ned d in def defin init itee and and clea clear. r. Bas Based ed upon the nature of the item, the price of the subject can easily be determined. Succinctly, the item of the contract can be clarified in terms of quantity, weigh or measure for the subject that almost similar.

In the event of death of the seller, the contract of  Bay’ of  Bay’ al-Salam will be deemed to be rescinded and the buyer will claim the return of his money from the heirs. In the event of the death of the buyer, however, the contract will remain operative. Damage to the goods will nullify the contract only when it exceeds the normal extent of damage. In the case of abrogation of the contract, the buyer will receive his advance. 16

Ordinarily, the buyer has no right to change the conditions of the contract in respect of quality or quantity or the period of delivery of the contracted goods, after   payment is made to the seller. However, both parties have the right to rescind the contract in part or in full. The buyer will thus have the right to receive the amount advanced by him, but not more or less than it (al-Sarakhsi, 2001; Mustafa al-Khin, 1992).

2. Islamic Financing for Agro Initiative in Islamic Banking Institutions.

In Malaysia, not all Islamic Islamic banks banks or Islamic windows windows of convention conventional al banks do offer Islamic financing facility for land cultivation and development projects.  Nevertheless, because of the important of agriculture to our country, there are some Islamic banks and Islamic windows of conventional banks do provide financial helps to farmers farmers and agro entrep entrepren reneur eurs, s, (where (where only only selecte selected d produc products ts offered offered by the Islamic banking institutions will be discussed for the purpose of this article) as below:

i) Agro Bank.

The facilities available for financing agriculture sector provided by Agro Bank  can be classified into two categories namely commercial funds and special funds established by government in order to provide funds for agriculture sector and have  been channeled through Agro Bank. The objective of providing these financing facilities facilities is to provide working working capital for a new agriculture agriculture project or for expanding expanding of existing agro project. 17

a) Comm Commer erci cial al Fun Funds ds..

Financing Financing under these funds are basically market and profit driven, hence the terms and conditions of these facilities are based on commercial consideration. The source of fund is the normal deposits by the depositors of Agro Bank and usually regulated by market forces. Agro Bank is keen to finance all activities related to the agri agricu cult lture ure secto sectorr and and the the scop scopee of finan financi cing ng is expe expend nded ed to the the prod produc ucti tion on,,  processing and marketing of agriculture produces.

Table 2.1 Agro Bank: Agro Cash-i Features:

Obje Object ctiv ive: e:

•To •To

Description: provi rovide de fina finan ncing cing

facil acilit ity y

for  for 

consum consumpti ption on needs needs related related to agricul agricultur tural al Eligibility:

and agro-based activities. •Government servant


contract). •Private servant. Financing Limit:

•Age between 18 to 58 years old. •Up to RM150,000.

Category: Shar iah Concept Applied: Collateral: Projects Eligible for Financing:

•Up to 15 years. •Terms Financing. • Bay’ al-Innah. nnah. •No collateral, only one guarantor. •All activities relates to agriculture.



Source: Suhaimi Bin Yacob, Executive 2, Financing Division, Agro Bank, Jalan Padang Garong, Kota Bharu, Kelantan. Interview carried out on 14 th December 2008 at 11.15 a.m. to 11.50 a.m.;  Agro Bank Pamphlet (2008), Pamphlet  (2008), “Financing Facilities”; Agro Bank,,, 15th December 2010.

 b) Special Funds.

From time to time, Malaysia government established schemes and provided funds for financing agriculture sector. These funds can be considered as incentives to  promote investments in priority agricultural sector. The incentives usually take the forms of low cost of financing, longer duration of financing period and higher margin of financing. These schemes are open to all institutions and companies incorporated in Malaysia Malaysia as long as the ownership by Malaysians Malaysians is more than 50%, as well as to all Malaysian citizens.

Through these special funds, Agro Bank will continue its social responsibility in order to finance agriculture sector as been assigned by the government through Ministry of Agriculture and Agro-Based Industry in achieving the related policies under Nineth Malaysia Plan (RMK-9).

Table 2.2 Agro Bank: Fund for Food (3F Loan). Features:



Description: promote investment




 production activities at the reasonable cost. •To •To

prom promot otee

(inc (inclu ludi ding ng

prim primar ary y

seasea-fo food od,,

vegetables and fruits).


food food prod produc ucti tion on

anim animal al

husb husban andr dry, y,

•To promot promotee the effici efficient ent distri distribut bution ion of  food and food products. •Malaysia citizens residing in Malaysia.


•Malaysian ian Financing Limit: Maximum Financing: Financing Period: Shar iah Concept Applied: Collateral: Projects Eligible for Financing:


institut tution ions


companies (at least with 51% ownership). •RM10,000-RM10 million. •90% of project cost. •Up to 10 years. • Bay’ Bithaman A jil . •Fully secured. •Food pr production, pr processing an and ma marketing (crops, livestocks and fishery). •Eligible items for crops are vegetables, tea,  paddy, roselle, maize, tapioca, production of  seeds and planting equipment for food crops and fruits fruits such such as banana banana,, mango, mango, guava, guava, watermelon, papaya, pineapple, sugar cane, coffee, cocoa and etc.

Source: Suhaimi Bin Yacob, Executive 2, Financing Division, Agro Bank, Jalan Padang Garong, Kota Bharu, Kelantan. Interview carried out on 14 th December 2008 at 11.15 a.m. to 11.50 a.m.;  Agro Bank Pamphlet (2008), Pamphlet  (2008), “Financing Facilities”; Agro Bank,,, 15th December 2010.

Table 2.3 Agro Bank: Food Production Credit Scheme (SKPM). Features:


Description: •To increase the national food production.

•To •To prov provide ide fixe fixed d capi capita tall and and work workin ing g capita capitall for the purpos purposee of financ financing ing food food Elig Eligibility:

 production project. •Malaysia citizens residing in Malaysia.


•Malaysian ian Financing Limit: Maximum Financing: Financing Period: Shar iah Concept Applied: Collateral: Projects Eligible for Financing:


institut tution ions


companies (at least with 50% ownership). •Not exceeding RM500,000. •90% of project cost. •Up to 8 years or up to 10 th September 2018. • Bay’ Bithaman A jil. •Fully secured. •All upstream and downstream food  production activities.

Source: Suhaimi Bin Yacob, Executive 2, Financing Division, Agro Bank, Jalan Padang Garong, Kota Bharu, Kelantan. Interview carried out on 14 th December 2008 at 11.15 a.m. to 11.50 a.m.;  Agro Bank Pamphlet (2008), Pamphlet  (2008), “Financing Facilities”; Agro Bank,,, 15th December 2010.

Table 2.4 Agro Bank: Paddy Credit Scheme (SKP). Features:


Description: •To increase production of paddy in the

 National Rice Bowl areas. •To •To

pro provide ide

revo evolvin lving g

credi reditt


the the

 production of paddy in eight Rice Bowl Eligibility:

areas. •Malaysia citizens residing in Malaysia.

Financing Limit:

•Malaysian •Malaysian age between 18 to 58 years old. •Not exceeding maximum financing of  

Maximum Financing: Financing period: Shar iah Concept Applied: Collateral: Projects Eligible for Financing:

RM15,000 per season. •100% of project cost. •Up to 6 months (1 season). • Bay’ Bithaman A jil . •Case by case. •All paddy planting production activities.

Source: Suhaimi Bin Yacob, Executive 2, Financing Division, Agro Bank, Jalan Padang Garong, Kota Bharu, Kelantan. Interview carried out on 14 th December 2008 21

at 11.15 a.m. to 11.50 a.m.;  Agro Bank Pamphlet (2008), Pamphlet  (2008), “Financing Facilities”; Agro Bank,,, 15th December 2010.

ii) Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat).

Faci Facili lity ty offer offered ed by Bank Bank Raky Rakyat at with with rega regard rdss of land land deve develo lopm pmen entt and and agricultural financing can be divided by three types namely Financing Scheme of  Land-i Ardhi, Term-i and Property-i, but by the limitation space in this article only one of the financing will be discussed as follows:

Financing Scheme of Land-i Ardhi is offers for developing idle land with respect of agriculture project by customer. The facility for financing under the scheme of Land-i Ardhi uses the contract of sales based on  Bay’  Bithaman  A jil  (BBA)  principle. Under this principle, the bank will buy property from fr om the customer on cash ca sh  basis and the bank will sell the property back to the customer based on deferred  payment basis. Based on normal procedure, the bank initially will determine the owner of the land. If the land is owned by the customer, bank will act as a buyer for  that property with cash basis purchase.

The The cont contra ract ct of selli selling ng will will be unde undert rtak aken en after after the the cont contra ract ct of buyi buying ng completed under the concept of BBA. If the land is not owned by the customer, the  bank will ask for the letter of permission from the actual owner in order to utilize and develop the land. The bank will use the concept of  al-Wak alah in completing this contract. Both buying and selling contracts can be done between bank and customer  using the concept of  al-Wak alah. lah. The contract of selling between bank and customer  will be based on deferred payment basis under the concept of BBA. The specific features and terms of this scheme are as below: 22

Table 2.5 Bank Rakyat: Financing Scheme of Land-i Ardhi. Features:


Description: •Malaysia citizens.

•Malaysian aged between 18 to 65 years old. Category: Shar iah Concept Applied: Margin and Quantum of Financing:

•Not in the state of bankruptcy. •Developing agriculture land. • Bay’ Bithaman A jil . •90% of of pr project co cost fo for th the me member of of th the  bank. •80% of project cost for non-member of the

Repayment Period:

 bank. •Up to 7 years. •Gra •Grace ce peri period od is allo allowe wed d unti untill 2 year yearss whereby within this period, customer is still

Collateral: Insurance: Deposit for Security:

not obliged to pay for the financing. •Fully secured on the land of the project. •Optional- normally Mortgage Takaful Plan. •3 months of the financing will be deducted

Accredited Accredited Land Estimator: Estimator:

automatically from the total of financing. •Only required required for financing financing above than RM30,000. •Repor •Reportt from from the extern external al land land estima estimator  tor  will be validated until 6 months. •For financing below RM30,000, the bank 

Process and Service Fees: Documents required:

will make own valuation. •Not applicable. •Agriculture Financing Form, Photocopy of   I/C, /C,

sal salary ary

slip lip

and and

grant rant,,

Fina Financ ncia iall

Statement of company or Current Account Statement.


Source: Mohd. Jozy Bin Mohd. Ghani, Executive, Financing Unit, Bank Kerjasama Rakyat Rakyat Malaysi Malaysiaa Berhad Berhad,, Jalan Jalan Raja Raja Perempu Perempuan an Zainab Zainab 2, Bandar Bandar Baru Baru Kubang Kubang Kerian, Kota Bharu, Kelantan. Interview carried out on 10 th December 2008 at 3.30  p.m. to 4.15 p.m.; Bank Rakyat,,, 15th December  2010.

iii) Maybank Islamic Berhad (MIB).

One of the facilities offered by Maybank Islamic Berhad with regards of  agriculture agriculture sector is BBA Term Financing-i. MIB offers two types of BBA term financing financing facilities. Firstly, Fixed Rate Term Financing-i. Financing-i. This facility facility offers a fixed financing cost throughout agreed tenure of financing. This enable customer to protect themselves against risk of rising cost of financing. Secondly, Variable Rate Term Financing-i. Under VRF, the selling price is fixed upfront based on a selling price rate while the effective rate levied on the account will vary based on charges in the Base Financing Rate (BFR), provided it does not exceed the fixed selling price rate.

If the BFR moves up to the extent that the effective rate exceeds the fixed selling price rate, the system will only compute profit based on the selling price. Customer will enjoy very competitive rate based on ongoing good market condition and yet protected by a fixed ceiling rate against adverse market condition.

BBA term financing is granted under the principle of  al-Bay’  Bithaman  A jil  (BBA) (BBA) or deferre deferred d paymen paymentt sale. sale. The requirem requirement ent for the presen presence ce of sale sale and  purchase elements is compulsory under BBA financing. Under this facility, MIB will assist the customer to identify suitable asset for the purpose. The bank shall purchase the asset concerned and simultaneously sell it to the customer at an agreed price. 24

Payment of selling price can be paid by installment over an agreed period. The salient features of this facility are as below: Table 2.6 Maybank Islamic Berhad: BBA Term Financing-i. Features: Eligibility:

Fixed Rate Financing: •Individuals.

Variable Rate Financing:

•Joint account holders. •Firms and corporate customer i.e. companies incorporated Purpose:

under the Companies Act. •Purchase of of as assets su such as as la landed pr properties, pl plants an and machineries, share and etc. •Investment portfolio. •Business working capital.

Tenure: Profit Rate:

•Refinancing of assets. •Up to 10 years. •Fixed at 1% over and above

•Up to 20 years. •At •At par par with with conv conven entio tiona nall

the the


conv conven entio tiona nall


lend lendin ing g






Source: Source: Aizatu Aizatull Akma Akma Binti Binti Arifin Arifin,, Consum Consumer er Sales Sales Execu Executiv tive, e, Financ Financing ing Unit, Unit, Maybank Islamic Berhad, Jalan Sultan Yahya Petra, Kota Bharu, Kelantan. Interview carried out on 14 th December 2008 at 2.35 p.m. to 3.15 p.m.; Maybank Islamic Berhad,,, 21st December 2010.

3. Anal Analys ysis is of Cont Contra ract ctss of Land Land Revi Reviva vall Appl Applie ied d by Isla Islami micc Bank Bankin ing g Institutions.


3.1 Analysis from the Perspective of Contract.

From the contracts of land revival discussed in section 1, it shows that none of  the three classical contract of agriculture in fiqh in  fiqh muamalah is being used by Islamic  banking institutions in financing agro initiatives. According to Associate Professor  Datin Dr. Paizah Binti Ismail (Shariah advisor for Agro Bank), it happens because of  the difficulty of Islamic banking institutions to find suitable third party or buyer to secure for the purchase of the produces since the bank only interest in managing and storing money and not other materials.

In order for the Islamic banking institutions to solve this problem at least for  the time being, the said banks apply  Bay’ al-Innah and Bay’ and Bay’ Bithaman Ajil in Ajil  in order to replace the element of riba of  riba for the financing of land revival in this country as well as to minimize their risks in business.

3.2 Analysis from the Perspective of Islamic Banking Institutions.

From From all the tables of financ financing ing facilit facilities ies offered offered by the Islamic Islamic bankin banking g institutions in the earlier section, it shows that only Agro Bank has offered variety types of financing for agro entrepreneur for the land revival initiative, where other  Islamic banking institutions in Malaysia such as Bank Islam Malaysia Berhad and Bank Muamalat are not offering such financing although the development of this country is very important for the development of our country in general. Their reason is for the time being no specific fund is allocated for the financing of the land revival initiatives in their institutions.



In the final analysis, Islam has explained in details pertaining to the method and contract for developing land and agricultural activities. These contracts can be applie applied d in modern modern Islamic Islamic bankin banking g institu institutio tions ns for financ financing ing farmers farmers and agro agro entrep entrepren reneur eurs, s, but need a little little risk taking taking attempt attempt by the Islamic Islamic banks. banks. It can be concluded that there are various types of Islamic financing provided to the Muslim community especially for farmers and agro entrepreneur in Malaysia to support their  activit activities ies rangin ranging g from from small small until until large large scale scale of enterp enterprise risess and covered covered up to different kind of agricultural projects. Thus, they should grab this opportunity in order  to expand their projects and develop uncultivated lands based on  shar iah compliant financing facilities provided by the local Islamic banks.


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Aizatul Akma Binti Arifin, Consumer Sales Executive, Maybank Islamic Berhad, Kota Bharu, Kelantan (14 December 2008).

Associate Professor Datin dr. Paizah Binti Ismail, Shariah Advisor Agro Bank  (26 March 2009).

Mohd. Jozy Bin Mohd. Ghani, Executive, Bank Rakyat, Kota Bharu, Kelantan (10 December 2008). 28

Suhaimi Yacob, Executive 2, Agro Bank, Kota Bharu, Kelantan (14 December  2008).


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