Meezan Bank has decided to start agricultural financing by extending a Shariah-compliant financing facility in the agriculturally rich central region of Pakistan.
“Agri-finance is a highly specialised field. We have established a dedicated Islamic agricultural finance unit based out of Faisalabad this year,” said Meezan Bank Executive Vice President and Head of Product Development and Shariah Compliance Ahmed Ali Siddiqui while speaking to The Express Tribune on Thursday.
Under the financing arrangement, Meezan Bank will sell diammonium phosphate (DAP), urea, pesticides and seeds to its clients on a Murabaha basis, which means that the bank will purchase agricultural inputs and sell them to farmers.
In other words, the bank buys and resells agricultural input with a mark-up instead of a conventional banking transaction where the bank lends money to the client to buy products. The borrower can make a lump sum repayment or opt for installments, adds Siddiqui.
Other than Murabaha, Meezan Bank is also going to offer Ijarah for agricultural financing in the case of movable property, like tractor and other farm equipment. Moreover, the bank is also going to offer diminishing Musharaka and Salam products through its agricultural finance unit, Siddiqui says.
Initially, the agricultural finance unit will work in and around Faisalabad through Meezan Bank’s regular branches. It will gradually expand into other areas like Bahawalpur and Multan.
“Although we’re starting agri-finance with a team of dozen or so professionals, the number will increase as we take our services to other parts of Punjab, Sindh and Khyber-Pakhtunkhwa,” Siddiqui notes.
In the first phase of its operation, which is expected to last six months, Siddiqui says the agricultural finance unit will utilise at least five out of over 300 branches of Meezan Bank.
“A segment analysis shows that agriculture financing still remains a neglected area and represents only 0.1% share in overall financing,” according to the State Bank of Pakistan’s latest Financial Stability Review for the second half of 2011.
Published in The Express Tribune