Developing Fintech and Islamic Finance Products in Agricultural Value Chain

Abstract

To meet the global population needs, it is projected to at least eighty billion dollars in investment per year to support the food security until 2050. It is widely known that the agriculture financing growth has stalled due to many reasons. Islamic finance has potential to spur the growth of agriculture financing to promote global food security. Meanwhile, agriculture in Indonesia is still nowhere to its potential. It is hindered by an inefficient and underdeveloped downstream segment, low access to financial and technology. This is a huge opportunity for Islamic finance in helping to bridge the gap through value chain finance approach as one of the strategies to reduce risk and give socio-economic spill-over effect along the chain. Islamic finance can promote agricultures sustainability and a more efficient process with FinTech enabled platform. The multiple case study proposes a sharia compliant community-based financing model in agricultural value chain practice with FinTech enabled platform. The result is this model integrating all actors from different market segmentation (landowners, suppliers, farmers, brokers, retailers, investor) into an Islamic value chain financing platform. However, determining buying intention, partnership establishment, and technology infrastructure are pivotal for its future implementation.

Mapping Islamic Fintech Research: A Bibliometric Analysis

“…Regarding the economic sector, some researches were conducted to explore a proper Islamic FinTech product in agriculture. Ningrat & Nurzaman (2019) urged the need to build Islamic FinTech innovation in agricultural sector that can integrate all actors from lower segment to upper segment through Agriculture Value Chain Finance (AVCF) scheme. Some issues related to accessibility to finance and asymmetric information can be overcome using this model.…”

Developing an Islamic Business Model: A Case for Agricultural Value Chain Finance in Agrobank, Malaysia

“…AVCF is a finance mechanism focusing on the flow of funds to and among the various links in a value chain to develop agriculture. Ningrat and Nurzaman (2019) stated that it has been widely used to develop and improve business processes in the agriculture sector. Furthermore, Miller and Jones (2010) found that the most frequently used form of VCF is trade-related financing.…”

“…The principle of Islamic financing for the agriculture sector is in accordance with the values of the Qurʾān and Sunnah that include being ethical, sustainable, responsible, transparent, green and equitable (BNM, 2021a(BNM, , 2021b. Studies on Islamic financing aimed at developing the agriculture sector have been carried out, both practically (Obaidullah, 2015) and conceptually (Saqib et al, 2014;Oladokun et al, 2015;Hussain & Syed Ja'afar Alhabshi, 2016;Moh'd et al, 2017;Ningrat & Nurzaman, 2019;Gundogdu, 2020). To introduce the reader to the basic principles of Islamic microfinance applied in the agriculture and rural sectors, Obaidullah (2015) carried out a case study on Islamic microfinance institutions (IsMFIs) in Muslim-majority countries such as Indonesia, Pakistan and Sudan.…”

“…Therefore, Hussain and Syed Ja'afar Alhabshi (2016) assessed that there is a similarity between Sharīʿah financing and the value chain concept as both emphasise the concept of value creation and risk sharing between parties involved in Sharīʿah financing, which is an essence in financial transactions based on the provisions of Islamic law. Furthermore, Hussain and Syed Ja'afar Alhabshi (2016) and Ningrat and Nurzaman (2019) proposed the use of Sharīʿah contracts to formulate value chain finance (VCF) from an Islamic perspective for the development of the agriculture sector.…”

“…In the developing stages, VCF was applied in conventional approaches that pay less attention to Sharīʿah principles (Bank Indonesia, 2015;Chen et al, 2015;Swamy & Dharani, 2016;Mrwebi, 2019). Therefore, several studies (e.g., Saqib et al, 2014;Oladokun et al, 2015;Hussain & Syed Ja'afar Alhabshi, 2016;Moh'd et al, 2017;Ningrat & Nurzaman, 2019) have proposed the application of agricultural value chain finance (AVCF) through the adoption of Sharīʿah contracts for developing the agriculture sector. However, existing studies on AVCF from an Islamic perspective mostly tend to be conceptual and have not been verified practically.…”