Bankers perception towards Bai Salam method for agriculture financing in Pakistan

Abstract

Islamic banking is planning to increase its market share up to 12 per cent of the total banking sector in Pakistan by 2012, as compared to its current market share of 5.6 per cent. This article collected the bankers views towards agriculture financing under the Islamically acceptable mode-Bai Salam (forward sale agreements of crop). It further compared agriculture financing under Islamic and interest-based financial systems. Overall, findings from this article are that bankers at large are confused about the application mechanism of Bai Salam contracts mainly because of improper land record maintained by the Revenue Department, widespread illiteracy and current government policy of issuing a single loan against each passbook (property record). The article presents recommendations that can be useful for the financial institutions not only in developing effective monitoring mechanisms, but also in minimizing financial losses. © 2010 Macmillan Publishers Ltd