Trade financing in Agriculture

Dilip Poricha 16

Kulbhushan 22

Sahil Puri 39
Sumit
Mishra 44
 Recent Trends Impacting Agri Trade Finance
Quality & Sustainability - Banks have
elaborated & made public a specific
agriculture policy which applies on all their
agri-financings. (Like preservation of water
resources, soils, forest & biodiversity,
working conditions, restrictions on child-
labour)
Digitalization & Granularity - Non-bank financing
Digitalization & blockchain are the
compulsory paths to reduce
significantly processing and
checking costs associated to trade
finance.
 3
Agricultural Value Chain Finance Instruments

Trade-related financing is the most frequently used form of value chain

finance.

Credits most often assume the form of either:

Pre-financed sales’ when credit is provided Advance payments’ given by buyers who
to farmers by vendors who sell farm inputs, purchase farm outputs.

Value chain assessment
Steps
Understand the value chain
– the market potential
and chain risks, the
inputs and stakeholders.
Identify the AgVC model,
its sustainability and
sources of financing, to
provide a framework for
analysing the following
processes.
Identify the transaction
processes – the value
added in the various levels
and the flows of the
product within the chain.
Identify the interests and
relationships of
participants, their inter-
dependence, commitment,
coordination and
relationships
Analysis of AgVCF– key issues
Financial assessment
Steps
Loan assessment (5 C’s) of
potential borrowers:
capacity
,Cash,characters,conditions,
Collaterals.
Assess the operating
environment – macro risks,
regulatory constraints and
potential support from the
Government or other
entities
Determine actual and critical
points of finance – the
current flows of funds and
then what is needed and in
what point in time.
Securing agreements
Steps
Analyse and compare
financing options, and relative
strengths, risks and costs of
financing for each level of
participant in VC
Develop VC linkage and
finance agreements – tailor-
design financing according
to the best option(s) to fit
the chain and draw up
contracts.
 Four types of AgVC business models:

Bank
1.Producer-driven
2.Buyer-driven Payment
3. Facilitator-driven
Pledged
4. Integrated Note
Trade co./
co./warehouse Payment
Product Product

And adapting to the Farmers Buyers

Finance Contracts
VC environment
 Financial instruments
AgVC Financing Instruments
Product-linked finance 1. Supplier and trader finance
2. Marketing / Trade Finance
3. Lead firm contract farming finance
Receivables finance 4. Bill discounting
5. Factoring and reverse factoring
6. Forfaiting
Physical asset 7. Warehouse receipts
collateralization 8. Financial leasing
9. Repurchase agreements
Risk mitigation products 10. Forward Contracts
11. Futures hedging
12. Insurance
Structured financing 13. Credit guarantees
14. Equity finance and joint ventures
15. Islamic finance
 Global Pratices
1. Partnering for Success in
Smallholder Oil Palm and Rubber
Plantation Investment Schemes: the
case of Afriland First Bank in
Cameroon
2. Farm Concern Commercial
Villages in Kenya
3. Tulaa integrated ICT solutions for
AVCs and financing in Kenya
4. Women’s Informal Huckleberry
Value Chain Financing System in
Cameroon
5. MADE agribusiness and
outgrower VC development in
Ghana
6. Facilitated Farmers’ Union and
Rural Bank Value Chain
Partnership in Ghana
Multi-partnership AVCF
business model for long- and
short-term investment
Market driven business
model with AVCF
Mobile platform for small
farmer commerce, finance
and extension
Women’s producer driven
VC system of internal trust-
based value financing
Facilitated buyer driven
model
Producer driven business
model with bank financing
Small farmer plantation land purchase and
long-term investment model involving agribusinesses,
multiple finance institutions, a capacity development
agency and a development facilitator.
Sustainable model for building the capacity and
linkages for small farmers to move into
commercial value chains
A for-profit company providing services of
extension messaging, mobile money, mobile commerce
and a data platform for small farmers
A women’s trust system of inter-regional value
chain operations and financial flows with multiple partners
and leading to formal financial opportunities for upgrading
investments
Capacity building and linking of agribusiness
firms and organization of small farmers for commercial
farming with financing and markets
First and second tier farmers cooperatives and
union arrangement with rural bank and buyer linkages
7. MobiGrow Smallholder
Financial Inclusion through AVCF
in Kenya
8. Facilitating Producer
Organizations for Financing
Improvements in Rice and Maize in
Nigeria
9. SNV Value Chain Facilitation
Approach to Small Farmer
Development in Rwanda
10. ACRE – Promoting
insurance risk coverage for AVC
partners and financial institutions
in Kenya and Rwanda
11. Nyala Company
Agricultural Insurance for Small
Farmers in Ethiopia
12. Use of a portfolio guarantee
as an instrument to increase
agricultural value chain financing in
Senegal
Bank led buyer linkage
and mobile model
Capacity development
and linkage case for small
farmers
Sustainable facilitation
model for development actors
Small farmer risk
management facilitation for
AVCF
Small farmer risk
mitigation for small
farmers using micro-
insurance
Risk reduction using
guarantee instruments
A partnership with a development partner
and commercial bank to reach unconnected small
farmers with markets and financing
An unusual initiative led by a research
center to organize and build the capacity of small farmers
for commercial farming, with market linkages and
financing and transitioning to mainstreaming financing
and market options
SNV business approach for capacity
development for sustainable market and financing linkages
provides an example for other development programs to
follow.
An insurance facilitator working with
financial organizations and insurers for innovative
insurance options for small farmers
A commercial level small farmer indexed
insurance program working with microfinance
institutions and banks
ACEP mutual savings and loan institution
uses loan guarantees to reduce risk and promote increased
agricultural VC to small farmers
 Production Processing Marketing
Stage Stage stage

A1: Farm management A2: Input supply and services to small

assistance farmers

Cooperatives / A3: Supply palm oil

nuts to SOCAPALM SOCAPALM
Smallholders
Agro-industry
C2

Cameroon plantation model for long term AVCF C1

A4b: Net revenue to

ADAF B2: Guarantee
producer
cooperatives & fund DEG
MITFUND
A4a: Fund
management
A4c: Management of A3: Produce payments &
Cooperative mutual loan management of B1: Counter
assistance fund cooperative revenue Guarantee fund

C3 Afriland First Bank

B3: Refinancing and

MC² Micro Rural
Technical assistance
Bank
Process flow
Working capital financing
Long term financing
Technical assistance
 Facilitated Farmers’ Union Value Chain Partnership

 A facilitate business model forming co-operative groups to undertake economic ventures, creating a 2nd
tier farmers union and linking farmer groups to financial institutions and marketing firms
 Evangelical Presbyterian Development and Relief Agency (EPDRA- Yendi) worked with the small
farmers with less than four hectares of non-irrigated land to help organize and train on management and
technical areas focused on VCs in selected sectors – maize, soybeans and in some areas rice
 Farmland is under customary authorities and families do not have
land titles which can be used as collateral.
 Farmers Union gets cashless financing for production and harvest from local Bonzali Rural Bank
 No arrears after several years

 Despite success, bank is reluctant to expand sufficiently to meet demand for other farmers unions and groups
 IFC (International Finance corporation) in Agriculture Sector

• As agriculture sector contributes about 40% of worldwide employment and a 100% food production increase will be required in developing
countries to feed the 2050 population, investment in agriculture sector is critical for driving global economic growth.
• The issues of food security, increased poverty in developing nations and overall imbalanced development of agriculture-dependent economies have
highlighted the urgent need for development in that sector.

• International financial intermediaries (FIs), IFC is deeply involved in various parts of the agriculture finance chains by providing customized
short and medium-term working capital as well as long-term financing.

• Our investments include both credit line and risk participation, and in some cases, are complemented by advisory service.

• Some of our recently established agriculture finance programs include-

a) Global Trade Liquidity Program (GTLP) - Food and Agri
b) Global Warehouse Finance Program (GWFP).
• IFC’s approach is innovative and aims to use banks and larger companies as intermediaries to reach small farmers and SMEs to achieve wider
reach and greater development impact.
 Needs Finance in the Agriculture Sector

Farmers and small agricultural entrepreneurs: This approach is focused on the actors in the agriculture sector that need financing. Farmers and
small entrepreneurs, like small supply companies, need finance to allow them to expand production and/or diversify products. This can include, for
example, finance for inputs (such as seeds and fertilizers), production (such as machinery and equipment) and marketing (such as processing,
packaging and transport)  

Actors along the value chain: The focus is on the links between different actors along a value chain. Agriculture entails a sequence of interlinked
activities transactions in a chain that starts from the supply of seeds and fertilizers and finishes in the mouth of the consumers..
 

Rural infrastructure: Financing can be also concentrated on the infrastructure needed to carry out agricultural activities. The sector depends heavily
on infrastructure such as rural transport systems, irrigation systems, water supply, sanitation, electricity, storage and telecommunication facilities. These
projects are costly and require large amounts of financing.

Research and Development (R&D): This includes the generation of agricultural technology and new technical knowledge about products, processes
and services for the sector
 Financial Instruments for the Rural Sector

Direct Finance 
Financing a particular actor of the agriculture sector is the traditional approach to financing in developing countries.

The following financial instruments are available:

1. Savings. In many countries, it takes the form of community savings and non-formalized group financing mechanisms. The tontine, for
example, is a Senegalese rotating system of small-amounts savings and credit organized by small groups of people. In Ghana, women have
formed groups, called susu groups, to finance among them agriculture activities with a system that distributes the responsibility of collection
and payments among the group members
2. Inclusive finance (or micro-finance).It includes savings, credit, insurance, remittances and payments and even guarantees to access finance.
Micro-finance is particularly popular in developing countries.  

3. Traditional finance: Finance can come from commercial banks, agricultural development banks, non-governmental organizations (NGOs),
cooperatives or investors, in the case of equity finance. Recipients of these instruments can also benefit from support from government or
international development banks
4. Leasing and factoring: Leasing is used to finance machinery, automobiles and equipment in agriculture. Factoring is when a company sells its
invoices to a third party (the factor) at a discount in order to improve cash flow.

5. Weather-based insurance. This is an instrument that improves the chances for access to finance by insuring against bad weather. Although
farmers prefer insurance for production loss, many financial institutions find the assessment too tedious and subjective
6. Credit guarantee schemes: This instrument also improves the chances for access to finance. These schemes “provide guarantees to groups
that do not have access to credit by covering a share of the default risk of the loan.
 Value-Chain Finance

Internal finance. This takes place between participants along the value chain based on their relationships, such as when a fertilizer company provides
fertilizers and the farmer only pays the company after they have sold their harvest. This approach includes product financing, trade credits, input-supplier
credits, marketing-company credit and lead firm credits.
 

External finance. This comes from outside the value chain—for example, a microcredit bank will cover the costs of purchasing the fertilizer for the
farmer. This includes a range of different instruments, which are summarized in Box 1.  

Infrastructure Finance

• A well-functioning agricultural sector needs appropriate infrastructure such as: road networks to link isolated rural areas to markets; irrigation
technology to reduce farmers’ dependence on rainfall; storage facilities to protect harvests from weather and pests; telecommunications to ensure
efficient trading,  
• Financing for these infrastructure projects comes in the form of debt, equity and other risk mitigation mechanisms. 
• For example, in India, the creation of infrastructure facilities is financed by the National Cooperative Development Corporation (Nabard,
2008).

• Innovation and knowledge are other critical areas that need financing. R&D has resulted in numerous innovations for agriculture.
• EMBRAPA, for example, a state-owned company that coordinates the national agricultural research system in Brazil, has developed more than 9,000
technologies in Brazil.
• It has been key to the transformation of savannahs into agriculturally productive land (FAO, 2012)
  The diverse system of agricultural finance enables a wide variety of actors to be
financers.

 Different risks and instruments are covered by different actors.  

 Cooperatives and credit unions play an important role in agriculture as self-help

member institutions.

Who Finances  Smaller cooperatives are well positioned to offer its members better access to
financial institutions and investments.

Agriculture  Most private sector finance traditionally comes from local commercial banks,
branches of foreign banks and insurance companies. These institutions finance
small farmers and entrepreneurs directly, facilitate microfinance schemes and
finance large rural infrastructure projects.  

 Development banks play an important role in agriculture finance by filling

financial gaps in developing countries. For example, the Inter-American
Development Bank (IADB) financed projects in 2004 and 2006 through PROSAP in
the northern provinces of Argentina, with investments in irrigation, rural roads
and electrification, and water management.
 Role of the governments in agricultural finance

The Rural Infrastructure Development Fund (RIDF) in India

• The RIDF addresses the lack of public investment in agriculture and rural development and is managed by the National Bank of Agriculture and
Rural Development (NABARD) in India.
• Its initial capital was INR 20,000,000,000 (over USD 300 million) and was subsequently raised each successive year through public and private
contributions.
• The RIDF has high social return and employment generation and a successful repayment rate (Mahajan, Sahai & Pasrija, 2007).

Pagamento Antecipado de Exportacao – Brazil

 
• The Brazilian government created a credit line program called Pagamento Antecipado de Exportacao (prepayment of exports).
• Producers’ crops and production can be financed by foreign parties by sending money to Brazilian producers.
• The producer repays the foreign party with goods plus interest on the original loan (this may be paid in cash or with additional goods).
• An added advantage of this structure is that there is no income tax due on the interest payment (paid in either cash or goods)

Thai Bank for Agriculture and Agricultural Cooperatives (BAAC) – Thailand

 
The BAAC is an agricultural development bank, known worldwide for its success in providing financial services to rural smallholders throughout
Thailand. Up to 1999, it operated under a special law, which has put it under the surveillance of the Ministry of Finance. A shift towards the general
banking supervision by the Bank of Thailand has since taken place (FAO, 2001).
 Agricultural Finance during COVID-19 and recovery: instruments and elements for a strategy
 

• COVID-19 could have a significant impact on agriculture finance and MSME (Micro, Small and Medium Enterprise) agribusinesses through
disruptions to the logistics, distribution, and production of food.
• Emergency responses that aim at compensating and mitigating the impact of COVID-19 on farmers and MSME agribusinesses. These
measures can be also applied in support of MSMEs in other sectors of the economy:

Well-targeted income support and matching grants.

• Depending on where are exactly the problems, matching grants could be used for example to cover the fixed overhead costs of
agribusinesses such as the payroll obligations to maintain the level of employment (prevent them from laying off workers) in the face of
lower business volumes.  
• According to a recent IMF paper titled “Policy Steps to Address the Corona ”, layoffs that will have lasting effects for future recovery and
negative impact on aggregate demand1. So far, most of the grant programs, aim to support retention of employment by firms (compensate
the payroll of firms) and pay some other fixed costs (e.g. rent, utilities) for a certain period of time (e.g. for two to three months).
• For smaller farmers, cash grants can support their income, and enable them to continue investing in agriculture

Support to maintain or increase financing and prevent the rise of NPLs. Loan repayment moratoria and restructuring.
Loan repayment moratoriums and relaxing the classification of restructured loans by Central Banks can be very beneficial for agricultural
businesses and farmers that face temporary difficulties in servicing their loans due to the current crisis.
Many governments, like the government of Malaysia, have imposed a moratorium on loan repayment for 6 months, which means no re-payment
of principal and interest and without compounding the interest during the time of the moratorium
Guarantees and lines of credit
Many governments are providing subsidized credit and credit guarantees to commercial banks (and in some countries also to financial
cooperatives and microfinance entities) to address the pressing needs of farmers and MSME agribusinesses during the pandemic.
 Agricultural Finance during COVID-19 and recovery: instruments and elements for a strategy
 

Equity investments by the state.

• In previous financial or economic crises, Governments took an equity stake to prevent the collapse of key large companies, as a temporary
measure.
• A recent example due to the COVID-19 crisis some countries such as France, are also considering measures that would allow the state to
temporarily take an equity position in companies to prevent them from going under.
• In the case of agriculture, this type of measures may be relevant especially for large systemic companies such as aggregators and processors
that play a strategic role in the operation of the agricultural value chains.

Credit guarantees:
• (Partial Credit Guarantees) can become a powerful instrument to enable banks and other qualifying financial institutions to continue lending
to agriculture during and after the crisis and for businesses to re -start their activities when the crisis subsides, and new credit is needed.
• Partial credit guarantees are particularly effective during times of increased uncertainty and risk aversion by financial institutions
• Credit guarantees would be valuable in the recovery period when businesses would need fresh funding to resume or scale up operations.
• With firms and farmers having their pervious debt (through restructuring or moratorium) in place, their collateral being committed already,
partial credit guarantees can provide the much-needed collateral for banks to resume lending even if parts of their previous debt are still
outstanding.
 Global Trade Finance Program (GTFP)

GTFP Guarantee for a Letter of Credit

•GTFP is IFC(International Finance Corporation)
initiative which offers investment,
advisory to encourage private sector development in less developed countries L/C in favor of exporter

• GTFP, extends & compliments the capacity of banks to deliver trade financing by Payment Payment Payment
Local International
providing risk mitigation in new or challenging markets Importer
Bank
Exporter
Bank (Confirming
(Issuing Bank)
• GFTP offers confirming banks partial or full guarantees covering payment risk on Bank)
banks in emerging markets for trade elated transactions

• These are transaction specific & evidenced by underlying asset such as LC, Trade
related promissory note, accepted drafts, BOE, bid & performance bonds, Advance
payment guarantees IFC IFC guarantee
• Pre-approved list of banks
• Banks contact IFC’s regional trade specialists for coverage and pricing

• If agreed, Confirming Bank sends a request for guarantee

• IFC issues its guarantee
• Issuing Bank consent is required
 Global Trade Finance Program (GTFP)

AVERAGE PORTFOLIO BALANCE BY REGION

(WITH TOP TWO COUNTRY EXPOSURES) Middle East & North Africa
Benefits for Banks Covered Instruments 1.Lebanon
2.Pakistan
Latin America & 13%
• Import Letters of Credit the Caribbean
• Expands geographical 1.Brazil 26%
• Standby Letters of Credit 2.Guatemala Asia & the Pacific
1.Vietnam
coverage for import • Guarantees: IFC covers the payment 18% 2.Bangladesh
and export clients obligation of the issuing bank for
• Provides risk coverage to performance bonds, bid bonds, Europe & Central
23%
Asia Sub-Saharan Africa
enhance trade lines in payment/advance payment 1. Turkey
20% 1.Nigeria

new or challenging guarantees 2. Romania 2.Kenya

• Promissory Notes for Trade: IFC

markets
covers the payment obligation of
• Builds new the issuing bank for pre-export
correspondent bank financing or post-import financing
relationships on a low- extended by a participating
risk basis Confirming Bank
4
 IFC Highlights

Providing Pre-Harvest Loans to Cotton Growers in Africa

• Burkina Faso : IFC extended a 1-year, million facility to Sofitex.

• Cameroon : IFC extended a 1-year,facility to Sodecoton.
• Mali : IFC extended a 1-year, facility Textiles (CMDT).

The facilities were used to finance the repayment of pre-harvest loans, the purchase of seed cotton
from farmers, the transit and storage of cotton, and to meet other working capital needs.
IFC also offered advisory services in productivity improvement (including irrigation) and weather
insurance solutions through the Better Cotton initiative.

Societe Generale Facility Expands Funding for Critical Commodities Shipment

IFC partnered with Societe Generale (SG) to launch a, 3-year

commodity trade finance facility to expand funding for trade flows of
agricultural and refined energy commodities through SG’s global
client network.
This partnership helps channel additional working capital to
emerging market firms to expand their commodities production
and trade in many of the world’s poorest countries.
 IFC Highlights

Providing Transactional Facilities to Fertilizers Traders in Africa and Latin America

Facility agreement
• Latin America : IFC participated in a 1-year,
transactionally secured facility for NITRON, .
• Africa : IFC participated in a 1-year, package of transactionally L/C flow Guaranteed transactions
Sells fertilizers to 1
secured and syndicated facilities for ETG Group. Guarantee
million farmers in Latin
• Africa : IFC is currently working on several other facilities with Agreement
America and Africa
international fertilizer suppliers and banks.
F a r mers
F a r mer s
Farmers…
The facilities were used to finance the purchase, storage,
transportation and sales of fertilizers to farmers in several African
countries, and other working capital needs. Example of transactional financing with a multi country approach
 Global Warehouse Finance Program (GWFP)

Program partners
Support for the agriculture sector by providing banks with liquidity or risk coverage Program partners co-finance
alongside IFC
backed by warehouse receipts, which can be used to provide financing to producers and
traders ahead of export.

Benefits to Banks IFC channels funding or guarantees for up to

50% on portfolio of warehouse
• Expands lending capacity to receipts/CMA
agricultural sector clients against Originating bank
their warehoused commodities Warehouse
Benefits to Producers receipts used
Originating bank open
Structure as collateral
facility for clients
• Enables increased use of financing
• Funded or unfunded: 50-50 risk based on warehouse receipts (SMA,
Agricultural Warehouse
sharing; can also take the form CMA or equivalent)
• players
of a direct loan Enhances income by having more
• Facility tenor: one year, flexibility in timing sales to protect
extendable up to three years against price seasonality
17 • Beneficiaries: prequalified sub- • Faster implementation based on Suppliers store crops in third-party warehouse
borrowers delegation from the Board
 Promoting Agriculture with a Syndicated Trade Facility

IFC participated in a one-year, pre-export finance facility for Trans-Oil, an

Offtakers Offshore Agent Bank
existing IFC client and a leading grain and seeds trading and processing Offtakers

Offshore
company in Moldova, to cover the company’s peak-season pre-export Commodities make payment before taking
funding needs. shipped possession of commodities
Disbursement
based on
The facility was structured as a borrowing base. TRANS-OIL and bank share risk on
borrowing base
report
exporter’s obligations

Security package included agri commodities, receivables, and pledge

of collection account. Commodities moved to port,
ownership transferred

Onshore
Why was Trans-Oil a good candidate? Suppliers Local Agent Bank
Payment to
• Export-oriented business (80+% of sales for export) suppliers and
domestic farmers
• Diversified portfolio of overseas buyers who pay for goods at
delivery Facility structure Payment Commdity

• Commodities and export contracts can be pledged to lenders

Example of pre-export financing structure

16
 GTFP Sustainable Shipment Letter of Credit

• Through the Sustainable Shipment

Letter of Credit initiative, we may
provide a price incentive for agri
commodities that have clearly
defined to contribute to
sustainability.
• Banks may be asked to provide
additional information to ensure that
the goods qualify under this initiative.
• Eligible goods include: RSPO
Certificate(Round Table on
sustainable Palm Oil) on Palm Oil

2
5
 Rwandan EAX Commodity Exchange .

 the East Africa Exchange financing through

 Warehousing –11 certified warehouses (30,000 MT) and collateral management for quality, quantity, insurance and security with related
services of drying, grading, bagging and issuing of warehouse receipts (WHRs).
 Electronic WHR Financing – partnering with six banks working with agriculture
 WHR Trading – using a NASDEC style electronic trading platform with remote trade access
 Information and Market Data Services – providing its 280 members, comprised of producer organizations (60%), buyers,
sellers and financial institutions
 Lessons – public support was important –
 WHR legislation ,Warehouses are a PPP ownership with government Contract compliance support from gvt
 Challenges – awareness
 PAlABANA DAIRY COOPERATIVE SOCIETY, ZAMBIA
 WIZZIT SOUTH AFRICA AND OMNI PAKISTAN
 Financing Challenges In Agri Sector

The agriculture finance

markets is constrained by a
variety of factors which
include:
High transaction costs to
Inadequate or ineffective Covariance of production,
reach remote rural
policies, market, and price risks.
populations.

Low levels of demand due to Lack of expertise of financial

Absence of adequate
fragmentation and incipient institutions in managing
instruments to manage risks
development of value chains. agricultural loan portfolios. 
How Financing Can Be Done

It is a partnership between
It vary considerably in the extent
landholders & a processing
inputs, costs, risks and benefits
Outgrower Scheme company for the production of
are shared between landholders
commercial agricultural
& companies.
products.

Conventional outgrower
Under the contract, the company
This may include schemes, the landholder is
may provide inputs and/or
arrangements such as joint responsible for the supply of
technical support to the grower,
ventures and contract agricultural produce to the
and guarantees a market for the
farming. contracting company at
product.
harvest.
 Development & Multilateral Development Banks
Development Banks finance institutions provide medium- to long-term finance.

For example Plantersbank (Philippines), SIDBI (India).

Multilateral Development Banks have far wider reach, usually a good source of concessionary
loan financing.

During financial crises, they often inject confidence in international trading system by providing
trade credit insurance and guarantees.

However, they do not normally deal with retail financing for individual SMEs. Rather, they direct
their financing through governments and banking institutions.
 Islamic banks and other Islamic financial institutions may apply the following
Islamic contracts to specifically finance agriculture:
 Muzara͚ah Contract (between an owner of a land and a farmer who is ready to
work in it. They share the yields as agreed 50-50% or 40-60%, for example)
 Mugharasah Contract (a landowner gives a farmer a land to plant fruit trees to
Islamic Modes of be partners in the land and trees when they bear fruits)
 Musaqah Contract (Use someone in watering fruit trees of an existing orchard
Finance for and share the yields as agreed 50-50% or 40-60%, for example)

Agricultural Sector  Salam Contract (the financier advances money to a farmer in order to receive a
certain amount of a measured quantity and described quality of a crop)
 Murabaha This is the sale of a commodity at a price, which includes a stated
profit known to both the vendor and the purchaser. This can be called a cost
plus profit contract. Under Murabaha, the Islamic bank purchases, in its own
name, goods that an importer or a buyer wants, and then sells them to him at
an agreed mark-up.
THANKS