Application of Islamic banking instrument (Bay 'Salam) for agriculture financing in Pakistan

The possibilities of applying Bay'Salam contracts in the agriculture sector of Pakistan are investigated in this article. Information regarding crop inputs, output and credit requirements was gathered from farmers in four districts of Punjab province by using a specifically designed survey. The survey revealed that 60% of the income of an average farm household came from agriculture. 70% of the farmers use the credit market for purchasing crops, paying labor and hiring rental machinery. Farmers believe that by purchasing crop inputs on cash, they can reduce their cost by 25%. In the rural economy, the survey revealed, middlemen are the major financers and purchasers of crops. Two possible models for introducing Islamic banking in the agriculture sector and some policy recommendations are also suggested in the article.