Farmers' Perception on the Feasibility of Salam Financing in Islamic Banking

Name: Farmers' Perception on the Feasibility of Salam Financing in Islamic Banking
Author: ÇOBAN, Uğur, ÜLEV, Salih

Title	Farmers' Perception on the Feasibility of Salam Financing in Islamic Banking
Author	ÇOBAN, Uğur, ÜLEV, Salih
Publication Place	University of Afyon Kocatepe - University of Afyon Kocatepe
Subject	Kocatepe Islamic Sciences journal: (Online), 2023-10, Vol.6 (Special Issue), p.181-201
Type	Book
Language	ara,eng
Digital	Yes
Manuscript	No
Library:	Leitir Library
Library Asset ID	ISSN: 2757-8399, EISSN: 2757-8399, DOI: 10.52637/kiid.1315729
Record ID	cdi_doaj_primary_oai_doaj_org_article_8bdd2c2a004c450bbfb3fa76a7e11b49
Library Location	DOAJ Directory of Open Access Journals
Notes	The problems experienced in the agricultural sector in recent years due to reasons such as the Covid-19 epidemic and the Russia-Ukraine war have once again revealed the importance of the sector. Because the full lockdown policies caused by the epidemic and the security reasons caused by the war brought about supply problems and, in parallel, inflationary pressures. In solving these problems arising in the agricultural sector, international cooperation must be accompanied by national measures. If necessary national and international measures are not taken, problems in the production or supply of grain products may turn into food crises. In order to support the agricultural sector, international policies are developed through international organizations such as the World Bank (WB) and the Food and Agriculture Organization (FAO) within the United Nations (UN). In addition, each country implements its own policies with various supports. Various economic and technical supports are offered by countries to develop and strengthen the agricultural sector. It is possible to group these supports as direct and indirect income support, price support and other supports. It is possible to say that there are problems in accessing finance despite the various supports offered to the sector by countries. Although there are different reasons for the problem of access to finance, one of the main reasons is that loans carry high interest rates. Therefore, it is necessary to develop alternative financing tools that will facilitate the sector's access to finance. One of the alternative tools to finance agriculture is salam financing. Salam financing, which is generally based on the principle of deferred goods and payment in cash, can be one of the financing tools that can expand the range of agricultural support with its interest-free feature. Currently, salam financing is offered by Islamic banks around the world. However, the salam financing offered to farmers by Islamic banks is at low levels. On the other hand, it is also possible to offer salam financing by agricultural institutions and organizations as well as Islamic banks. In this context, it is considered essential for the success of the application to discover the opinions of the farmers who will demand this tool regarding the application principles of Salam financing as a financing tool by Islamic banks or agricultural institutions and organizations. For this purpose, the study focused on exploring farmers' perceptions about the applicability of salam, one of the Islamic financing tools, in Islamic banking or agricultural institutions and organizations. To explore the farmers' perception in question, a qualitative research method was adopted and face-to-face interviews were conducted with 17 farmers using the semi-structured interview technique. The data obtained from the interviews were classified and eight themes were determined. Each theme was analyzed in detail and compared with the existing literature. The research results reveal that there is a positive perception that Salam financing can be applied by both participation banking and organizations carrying out agricultural activities, as it is interest-free and provides capital to farmers. However, focusing on its implementation by agricultural organizations for reasons such as expertise and trust may facilitate the dissemination of this tool, at least in the short term. In order for the Selem application to be successful and to become widespread, reducing the identified risks is considered an important issue. Especially agricultural insurance and a salam contract for amounts below farmers' production potential can reduce risks. The rate of participants who stated that they would prefer Salam financing if it was implemented is higher than the participants who stated that they would prefer Salam financing due to the interest-free principle. This shows that Salam financing is a tool that can be offered to all farmers, not just farmers who are interest sensitive. As a result, salam financing should be evaluated and developed as an alternative tool in order to develop the agricultural sector and reduce the negative consequences of financing problems in this sector. In this context, it is necessary to focus on the development of policies that will popularize Salam, especially in public participation banks and agricultural institutions and organizations, and to make the necessary legal regulations. The significance of the agricultural sector has been reemphasized in recent years due to various challenges, including the Covid-19 pandemic and the Russia-Ukraine war, which have resulted in supply disruptions and concurrent inflationary pressures caused by the implemented containment measures and security concerns. If the necessary national and international measures are not taken, problems in the production or supply of grain products may turn into food crises. In order to support the agricultural sector, international policies are developed through international organizations such as the World Bank (WB) and the Food and Agriculture Organization (GTO) under the United Nations (UN). In addition, each country implements its own policies with various supports. Various economic and technical supports are provided by the countries for the development and strengthening of the agricultural sector. It is possible to group these supports as direct and indirect income support, price support and other supports. It is possible to say that there are problems in accessing finance despite the various supports offered to the sector by the countries. High interest rates on loans are a major obstacle to accessing finance, necessitating the development of alternative financing instruments. Salam financing, based on deferred payment and upfront settlement, is one such tool that can enhance agricultural support without interest. Currently, Islamic banks offer Salam financing globally, but its availability to farmers remains limited. Agricultural institutions and organizations, along with Islamic banks, have the potential to provide Salam financing. Therefore, it is crucial to explore farmers' perspectives on the implementation of Salam financing by Islamic banks or agricultural entities. For this purpose, the study focused on exploring the perception of farmers about the applicability of salam, which is one of the Islamic financing instruments, in Islamic banking or by agricultural institutions and organizations. In order to explore the perception of the farmer in question, face-to-face interviews were conducted with 17 farmers using the semi-structured interview technique by adopting the qualitative research method. The data obtained from the interviews were classified and eight themes were determined. Each theme was analyzed in detail and compared with the existing literature. The results of the research reveal that there is a positive perception that Salam financing can be applied by both participation banking and agricultural organizations, since it is interest-free and provides capital to farmers. However, focusing on its implementation by agricultural organizations for reasons of expertise and trust may facilitate the dissemination of this tool, at least in the short term. In order for the Salam practice to be successful and widespread, it is considered an important issue to reduce the identified risks. In particular, agricultural insurance and making salam contracts for the amounts below the farmers' production potential can reduce the risks. The rate of the participants who stated that they would prefer Salam financing if it was implemented is higher than the participants who stated that they would prefer Salam financing because of the interest-free principle. This shows that Salam financing is a tool that can be offered to all farmers, not just those who have interest rate sensitivity. As a result, Salam financing should be evaluated and developed as an alternative tool in order to develop the agricultural sector and to reduce the negative consequences of financial problems in this sector. In this context, it is necessary to focus on the development of policies and make the necessary legal arrangements that will spread the salam, especially in public participation banks and agricultural institutions and organizations.
Detaylı Başlık	İslami Bankacılıkta Selem Finansmanının Uygulanabilirliğine Dair Çiftçi Algısı

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Farmers' Perception on the Feasibility of Salam Financing in Islamic Banking

Author ÇOBAN, Uğur, ÜLEV, Salih

Publication Place University of Afyon Kocatepe - University of Afyon Kocatepe

Subject Kocatepe Islamic Sciences journal: (Online), 2023-10, Vol.6 (Special Issue), p.181-201

Type Book

Language ara,eng

Digital Yes

Manuscript No

Library Leitir Library

Library Asset ID ISSN: 2757-8399, EISSN: 2757-8399, DOI: 10.52637/kiid.1315729

Record ID cdi_doaj_primary_oai_doaj_org_article_8bdd2c2a004c450bbfb3fa76a7e11b49

Library Location DOAJ Directory of Open Access Journals

Notes The problems experienced in the agricultural sector in recent years due to reasons such as the Covid-19 epidemic and the Russia-Ukraine war have once again revealed the importance of the sector. Because the full lockdown policies caused by the epidemic and the security reasons caused by the war brought about supply problems and, in parallel, inflationary pressures. In solving these problems arising in the agricultural sector, international cooperation must be accompanied by national measures. If necessary national and international measures are not taken, problems in the production or supply of grain products may turn into food crises. In order to support the agricultural sector, international policies are developed through international organizations such as the World Bank (WB) and the Food and Agriculture Organization (FAO) within the United Nations (UN). In addition, each country implements its own policies with various supports. Various economic and technical supports are offered by countries to develop and strengthen the agricultural sector. It is possible to group these supports as direct and indirect income support, price support and other supports. It is possible to say that there are problems in accessing finance despite the various supports offered to the sector by countries. Although there are different reasons for the problem of access to finance, one of the main reasons is that loans carry high interest rates. Therefore, it is necessary to develop alternative financing tools that will facilitate the sector's access to finance. One of the alternative tools to finance agriculture is salam financing. Salam financing, which is generally based on the principle of deferred goods and payment in cash, can be one of the financing tools that can expand the range of agricultural support with its interest-free feature. Currently, salam financing is offered by Islamic banks around the world. However, the salam financing offered to farmers by Islamic banks is at low levels. On the other hand, it is also possible to offer salam financing by agricultural institutions and organizations as well as Islamic banks. In this context, it is considered essential for the success of the application to discover the opinions of the farmers who will demand this tool regarding the application principles of Salam financing as a financing tool by Islamic banks or agricultural institutions and organizations. For this purpose, the study focused on exploring farmers' perceptions about the applicability of salam, one of the Islamic financing tools, in Islamic banking or agricultural institutions and organizations. To explore the farmers' perception in question, a qualitative research method was adopted and face-to-face interviews were conducted with 17 farmers using the semi-structured interview technique. The data obtained from the interviews were classified and eight themes were determined. Each theme was analyzed in detail and compared with the existing literature. The research results reveal that there is a positive perception that Salam financing can be applied by both participation banking and organizations carrying out agricultural activities, as it is interest-free and provides capital to farmers. However, focusing on its implementation by agricultural organizations for reasons such as expertise and trust may facilitate the dissemination of this tool, at least in the short term. In order for the Selem application to be successful and to become widespread, reducing the identified risks is considered an important issue. Especially agricultural insurance and a salam contract for amounts below farmers' production potential can reduce risks. The rate of participants who stated that they would prefer Salam financing if it was implemented is higher than the participants who stated that they would prefer Salam financing due to the interest-free principle. This shows that Salam financing is a tool that can be offered to all farmers, not just farmers who are interest sensitive. As a result, salam financing should be evaluated and developed as an alternative tool in order to develop the agricultural sector and reduce the negative consequences of financing problems in this sector. In this context, it is necessary to focus on the development of policies that will popularize Salam, especially in public participation banks and agricultural institutions and organizations, and to make the necessary legal regulations. The significance of the agricultural sector has been reemphasized in recent years due to various challenges, including the Covid-19 pandemic and the Russia-Ukraine war, which have resulted in supply disruptions and concurrent inflationary pressures caused by the implemented containment measures and security concerns. If the necessary national and international measures are not taken, problems in the production or supply of grain products may turn into food crises. In order to support the agricultural sector, international policies are developed through international organizations such as the World Bank (WB) and the Food and Agriculture Organization (GTO) under the United Nations (UN). In addition, each country implements its own policies with various supports. Various economic and technical supports are provided by the countries for the development and strengthening of the agricultural sector. It is possible to group these supports as direct and indirect income support, price support and other supports. It is possible to say that there are problems in accessing finance despite the various supports offered to the sector by the countries. High interest rates on loans are a major obstacle to accessing finance, necessitating the development of alternative financing instruments. Salam financing, based on deferred payment and upfront settlement, is one such tool that can enhance agricultural support without interest. Currently, Islamic banks offer Salam financing globally, but its availability to farmers remains limited. Agricultural institutions and organizations, along with Islamic banks, have the potential to provide Salam financing. Therefore, it is crucial to explore farmers' perspectives on the implementation of Salam financing by Islamic banks or agricultural entities. For this purpose, the study focused on exploring the perception of farmers about the applicability of salam, which is one of the Islamic financing instruments, in Islamic banking or by agricultural institutions and organizations. In order to explore the perception of the farmer in question, face-to-face interviews were conducted with 17 farmers using the semi-structured interview technique by adopting the qualitative research method. The data obtained from the interviews were classified and eight themes were determined. Each theme was analyzed in detail and compared with the existing literature. The results of the research reveal that there is a positive perception that Salam financing can be applied by both participation banking and agricultural organizations, since it is interest-free and provides capital to farmers. However, focusing on its implementation by agricultural organizations for reasons of expertise and trust may facilitate the dissemination of this tool, at least in the short term. In order for the Salam practice to be successful and widespread, it is considered an important issue to reduce the identified risks. In particular, agricultural insurance and making salam contracts for the amounts below the farmers' production potential can reduce the risks. The rate of the participants who stated that they would prefer Salam financing if it was implemented is higher than the participants who stated that they would prefer Salam financing because of the interest-free principle. This shows that Salam financing is a tool that can be offered to all farmers, not just those who have interest rate sensitivity. As a result, Salam financing should be evaluated and developed as an alternative tool in order to develop the agricultural sector and to reduce the negative consequences of financial problems in this sector. In this context, it is necessary to focus on the development of policies and make the necessary legal arrangements that will spread the salam, especially in public participation banks and agricultural institutions and organizations.

Detaylı Başlık İslami Bankacılıkta Selem Finansmanının Uygulanabilirliğine Dair Çiftçi Algısı