Bay Salam as Panacea to Agricultural Woes of Small Holder Farmers in Nigeria
By Bashir Saleh Abdu
Bay Salam is Arabic phrase which means differed trade. In simple terms, it is a contract where the price of an asset is paid immediately or on the spot and delivery of the asset is deferred and made at later time.
As a general rule, the sale of a product that is not in existence is forbidden under Islamic Commercial Jurisprudence. However, Bay Salam enjoys a rare exception from a Hadith of the Holy Prophet (Peace be upon him) where he laid down the basic principles for the transaction in the following terms:
That (a) the price of the commodity to be traded must be paid on the spot once it is agreed upon; (b) the quantity and quality of the commodity must be specified at the time of the contract and; (c) the delivery date must also be specified.
Bay Salam was originally utilized in the agricultural sector during the time of the Prophet (SAW) where farmers sell a specified amount of their products at the onset of the cultivation period, and receive payment immediately, while delivery is effected at the time of harvest, thereby complying with the above tradition.
Bay Salam, as an Islamic financial product designed to cater for the agricultural sector, will go a long way in solving the financial challenges of smallholder farmers through the instrument of a non-interest microfinance institution. It has a very simple and straightforward structure where a farmer sells his products to a bank or its customers for a spot price at the beginning of the cultivation period to be delivered after harvest.
In some parts of Gombe and Yobe States, the principles of Bay Salam have been employed, albeit without regulation, where farmers are given finances at the beginning of the cultivation period in exchange for produce after harvest and the success rate is very encouraging. This underscores the need for financial institutions to step in for if this can be achieved through informal arrangements, organised private sector will surely do much better.
It is important to note that the law in Nigeria does not in any way prohibit the floating of an Islamic Agricultural Microfinance Banks to operate a non-interest agricultural financing scheme.
A non-interest agricultural microfinance bank will go a long way in offering solutions to the financial challenges of smallholder farmers by rolling out a number of Islamic financial products such as Salam to boost the availability of funds for farmers to cultivate their farms during the harvesting period and repay the bank with produce.
In turn, the bank may decide to sell the produce immediately, aggregate the produce for a certain period in order to increase their profit margins, or process the produce to add value and maximize the profit margin.
For better organization, the banks may stagger the release of the funds to the various cultivation stages in order to mitigate some of the risks associated with releasing the entire sums to the farmers.
This will also require staggering of the Bay Salam agreement in order for the basic principle of spot payment for the contract to be fulfilled under Islamic Commercial Jurisprudence.
There is already a system put in place by Nigerian Incentive-based Risk-Sharing System for Agricultural Loan (NIRSAL) which provides financing for farmers.
However, despite the fact that the NIRSAL model has been designed to be effective, it has not been an impressive exercise as it lacks proper implementation which is as a result of the deliberate non-inclusion of adequately trained agricultural extension workers in the whole scheme.
This is the gap which privately owned Islamic Agricultural Banks should bridge when designing their systems, to capitalise on the successes of NIRSAL and avoid its pitfalls, as whence they get this right, the story will be of success.
Bashir Saleh Abdu, Esq. writes from Bayero University, Kano.
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