While multilateral agencies such as the Islamic Development Bank Group (IDB) have been involved in financing the agricultural sector, the mainstream Islamic finance industry has not directly got involved in the sector in any meaningful way. (source)
The Jeddah Declaration for the Achieving Food Security for instance has mandated the IDB to devote more resources to the agricultural sector, which any is a key component of the ordinary approvals of the group's regular financing facilities. The IDB also has an affiliate, the International Center for Biosaline Agriculture (ICBA) which is based in Dubai and which is an international applied research centre for agricultural development in arid and semi-arid areas affected by salinity.
There are notable exceptions especially in countries that are primary agricultural commodity producers and exporters including Turkey and Malaysia. In Turkey for instance, Albaraka Turk Participation Bank has pioneered a unique payments card, the Barakat Card, to facilitate documentation and payments for small and medium sized farmers selling their produce to state silos.
Bahrain-based Gulf Finance House (GFH), together with its partners, Abu Dhabi Investment House and Ithmaar Bank, also launched the Vision3 concept of long-term sustainable investments in the agricultural sector with the Investment Support and Promotion Agency of Turkey (ISPAT) with the aim of raising some $9 billion investment in Turkey's agricultural sector, through a specialized investment entity called AgriCap.
The three promoters also signed a preliminary agreement with Morocco's largest bank, Attijariwafa, to establish a similar AgriCap Invest, a specialized food and agriculture focused investment institution, to investment in the agricultural and agri-business industry in Morocco and neighboring Maghreb countries.
However the progress of these initiatives have been affected by the global financial crisis and the financial woes of Gulf Finance House, and it is not clear whether they will come on track.
The latest foray into dedicated Islamic financial support for the agricultural sector is by the Malaysian agricultural and SME bank, Agrobank, which is in the process of converting into a full-fledged Islamic agribank, a process which may take up to 2015. This would make Agrobank the first such fully-fledged Shariah-compliant bank in the region if not the world.
According to Mohd Fadzmi Wan Othman, CEO of Agrobank, the conversion process is well under way and is part of a restructuring plan following the corporatization of the bank in 2008 which would also position the bank in line with the objectives of the Malaysian government's Economic Transformation Program (ETP). The bank will continue to focus on financing the agricultural sector, especially small and medium sized enterprises, through its 175 branch network throughout the country.
Agrobank is an institution which provides holistic financial services and banking facilities, including savings accounts, banking services, loan facilities, insurance and Takaful coverage and advisory services. It is essentially a Government-linked-Company (GLC) under the Minister of Finance Incorporated (MFI). Not surprisingly, the bank's financing of the agricultural sector is driven by a policy set forth by the Ministry of Agriculture and Agro-based Industries.
Historically, Agrobank is a continuity of the former Bank Pertanian Malaysia which has 40 years of experience in agricultural banking and a proven track record in shaping and developing successful entrepreneurs in the sector.
This is not the first time that a Malaysian special financial institution set up under a special act of parliament has gone down this route. In the 1990s, Bank Kerjasama Rakyat, the Malaysian Cooperative Bank, undertook a similar successful transformation in converting all its activities and operations to comply with Islamic financial principles.
Agrobank has effectively operated a successful Islamic Banking Window since it became corporatized in 2008, offering amongst other products, personal banking services such as AgroCash-i (Bai' Al-Inah), Hartani-i and Ar-Rahn; deposit accounts such as AgroSavings-I, AgroMuda-i and AgroTani-i; Credit Enhancer Islamic Scheme (Enhancer-i) aimed at SMEs; the Al-Mudharabah Savings Protection Scheme; and the Credit Protection Takaful Scheme.
The bank already has a Shariah committee in place to advise it on all matters relating to Fiqh Al-Muamalat (Islamic law relating to financial transactions) and in accordance with the requirements of Bank Negara Malaysia in relation to Islamic financial products and services.
According to Agrobank, Shariah principles are the "foundation for the practice of Islamic finance through the observance of the tenets, conditions and principles espoused by Shariah. Non-compliance with Shariah principles may bring about financial and legal disrepute that could affect the reputation of the Islamic financial institution and the industry generally. Bank Negara Malaysia (the Bank) places great importance in ensuring that the overall Islamic financial system operates in accordance with Shariah principles. To meet this objective, Agrobank formed a Shariah committee to advise on its Shariah matters."
As the Shariah decisions, views and opinions bind the operations of Agrobank, the Shariah committee shall ensure decisions are made after undergoing rigorous and robust research and due diligence. The Shariah committee shall perform an oversight role on Shariah matters related to Agrobank's business operations and activities, said the bank in a statement.
