Ijara for the agricultural sector

Hello readers, I will be writing about Ijara for the agricultural sector. The agricultural sector is a good one for business, however, capital challenges which arises from operating in the sector might make potential business owners such as an entrepreneurs or farmers shy away from the business.

Conventional loans should not be collected as it involves interest and Allah hates interest, so do not go near it. Interests causes problems to societies, for example mortgages (people lose their homes), government that borrow conventional loans end up paying so much for it, at the end of the day the loss is way higher than any benefit they must have thought of getting from it. Conventional Student loans is another story. I hope you can relate with this.

This is where Islamic finance comes in. Islamic finance are ethical. Islamic finance are asset based  while coventional are credit based. Asset based means they buy the asset. Ijara is one of the types of Islamic finance whereby the Islamic bank buys an asset and leases it out to lessee who will in return pay rent on it. The bank actually owns the property and the customer pays rent on it.

Farmers and entrepreneur might not want to buy machineries and equipments needed for the growth of the business because it might go obsolete. They might also not have the financial capability to buy the machineries or equipments. An Islamic bank that gives Ijara buys these machineries and equipments then lesses them to the entrepreneur or farmer at a pre-agreed price. Thus, the entrepreneur or farmer only pays rent on the property. Ownership remains with the Islamic bank which the bank can sell after the lease expires. The Islamic bank makes profit from the rent.

The farmer or entrepreneur that might not want to buy the machineries and equipments for fear of them going obsolete will be satisfied as they do not own the property and the ones that were financially incapable of buying the machineries and equipments will also be able to use them at cheaper prices insha Allah (if Allah wills). There busineses grow and then contributes to the benefit of an economy. Allah knows best.

Everything should be done for the sake of Allah. Part of doing something for the sake of Allah means hoping for a reward from Him in this life and the Hereafter. Everything happens according to the will of Allah (you have freewill, therefore, you are responsible for your actions).

Alhamdulillah (Praise be to Allah), thank you for reading this article, keep checking this blog regularly. Cheers!