The Implementation of Salam-Contract for Agriculture Financing Through Islamic-Corporate Social Responsibility (Case Study of Paddy Farmers in Tuban Regency Indonesia)

Abstract

This research is aimed at discovering a stable financial schemingformula or model that would be compatible with the natural characteristics ofa paddy farming cycle in Tuban. The qualitative research employs the use of anactive participatory community through the means of a focus group discussion, anin-depth interview and face to face interviews with respective stakeholders andkey informants. The Salam contract, which is highly beneficial is a prospectivefinancial scheme that terminates the long business chain found in most businessesin Indonesia. The Corporate Social Responsibility which is managed through theSyariah approach (I-CSR) from a company, can become the solution to bridgethe gap found in the implementation of funds for a Salam contract. The Salamcontract applicability is dependent on the Islamic farmer cooperatives (BMT), aunit of joint venture organization serving as the key players in the execution ofthe function of a paddy warehouse-trading agent and direct financing to farmers.Strong support also comes from the zakat, infāq, and shodaqoh institution (LAZ)whose role is educating and encouraging the paddy farmers’ skills and competency,especially to enable them access end-user markets using the aid of informationtechnology. Penelitian ini betujuan untu menemukan formula skema pembiayaanpertanian yang stabil sesuai dengan karakteristik alamiah pertanian padidi Kabupaten Tuban. Metode penelitian kualitatif dipergunakan dalammenyelesaikan penelitian ini dengan partisipasi aktif komunitas melaluimedia diskusi kelompok, wawancara mendalam tatap muka dan observasikepada informan kunci dan pihak yang terlibat secara langsung dalam tata-niaga pertanian padi di Kabupaten Tuban. Kontrak salam adalah skemapembiayaan yang sangat menguntungkan bagi petani dan pada aplikasinyamampu mengambil peran pembiayaan distributor dalam tata niaga pertanianpadi. Islamic Corporate Social Responsibility (I-CSR) yang dikelola berdasarkanprinsip ekonomi Syariah dari perusahan yang beroperasi di wilayah Tuban bisamenjadi solusi dana yang dikembangkan untuk pembiayaan pertanian yangdihindari oleh perbankan karena siklus bisnis yang berbeda. Keberlangsungan kontrak salam pertanian untuk komoditas padi akan bergantung pada koperasipetani yang terdiri dari koperasi simpan pinjam Syariah (BMT), gudang padi,penggilingan padi dan unit perdagangan yang kesemuanya disebut sebagai KUB(Kelompok Usaha Bersama). Dukungan yang kuat juga berasal dari Lembagazakat, infāq dan shodaqoh, yang memiliki peran untuk melakukan pelatihankeahlian petani dan membantu memenuhi kebutuhan dasar petani yang menjadianggota dalam KUB.

Factors Influencing the Low Demand for Salam Financing Contracts in Indonesia – Concept Paper

“…The only way for the bank to secure its assets in Salam financing is for the harvest to be delivered when it matures and be identifiable (CIMA, 2022). However, if the crop is not successful and there is a problem in the planting process which results in poor crop quality, the bank will bear the risk and loss (Hudaifah, 2019). If the bank neglects this factor, both parties, particularly the bank, will suffer significant losses.…”

“…Otherwise, the farmers will frequently seek available funds from a third party in the form of repayment of the loan. The situation would be more complicated if the lending party intended to trap the farmers, in this case, the so-called loan sharks that wish to pay little money for the farmers' harvests (Hudaifah, 2019). In addition, they are unlicensed moneylenders who charge incredibly high-interest rates and sometimes use threats and violence to scare people who cannot repay their loans.…”

“…In addition, they are unlicensed moneylenders who charge incredibly high-interest rates and sometimes use threats and violence to scare people who cannot repay their loans. Furthermore, the lack of actual collateral, such as land ownership documents or automobiles, makes a rapid loan necessary to satisfy the banking requirements for the Salam agreement (Hudaifah, 2019). Moreover, land title is vital, wherein the farmland can be used as mortgage security.…”

“…However, only about 7% of Indonesians use Islamic banking products. ISSN 1927-5986 E-ISSN 1927 According to a report from the Indonesian Financial Service Authority (OJK/Otoritas Jasa Keuangan), the Salam contract for agriculture, one of the uncommon products offered by Indonesia's Islamic banks, represents less than 1% among all financing supplied by Islamic banks (Hudaifah et al, 2019). As a result, Indonesia must take advantage of and extensively use Salam financing.…”

A Literature Review of Salam Contract for Agricultural Development in Gombe State, Nigeria

“…A study by Kaleem & Abdul Wajid, (2009) opined that numerous Islamic banks in Muslim countries have adopted and provided much concern about as-Salam contract as a means of financing agricultural activities. Another study by Hudaifah et al, (2019) reveals that the majority of farmers in developed Muslim countries require capital to support their farming practice. The Salam contract was found relevant to cover the cost of farming, including the purchase of seeds, pesticides, and fertilizer, at the start of their cultivating period.…”