The State Bank of Pakistan’s Guidelines on Islamic Financing for Agriculture

An Analysis from the Prospective of Islamic Law

Abstract

The agricultural sector plays a central role in the economic growth and stability of any agricultural country. It is, therefore, a benchmark through which the development of a country is determined. Being a Muslim country that relies on agriculture, various guidelines/prudential regulations have been issued by the State Bank of Pakistan (SBP) in order to facilitate and encourage financial institutions to pursue agriculture financing-both for crop and non-crop activities. Over the last few years, the SBP has started linking the expansion of agricultural activities with the implementation of sharī‘ah-based financing products. However, it is argued that while framing these guidelines and prudential regulations, the SBP overlooked some basic principles of the sharī‘ah. For instance, these guidelines ignore the lower class of farmers who have poor economic conditions and are not able to meet their basic agricultural needs for both crop and non-crop activities, do not take strict action against provision of loan on interest, allow unjustifiable collateral and securities, and recommend rigid procedure for the issuance of loan. This research aims to critically analyze the above-mentioned guidelines and prudential regulations of the SBP and suggest how to make them sharī‘ah based or at least sharī‘ah compliant.