KARACHI, Sept 1: The State Bank has devised comprehensive guidelines to provide Islamic financing to the agriculture sector and a detailed report of the task force was issued on Monday.

The task force, constituted by Dr Shamshad Akhtar, Governor, State Bank of Pakistan, on “Islamic agricultural finance” has prepared draft guidelines on Islamic financing for agriculture. The task force comprised senior State Bank officials, Shariah advisors and heads of agriculture departments of commercial banks.

The draft guidelines issued by the State Bank are aimed at facilitating Islamic banks and conventional banks involved in agriculture financing and having Islamic banking licences in developing specialised Islamic financing products to meet the financial needs of the farming community.

The draft guidelines broadly cover Islamic modes of financing, like Murabaha, Ijara, Musawamah, Salam, Istisnaa, Musharakah, Diminishing Musharakah, Mudarabah, Musaqaat, and Muzara’at, that can be used for meeting the financing requirements of farm and non-farm sector activities, including livestock, fisheries, poultry, orchards, etc.

The draft guidelines also cover Islamic financing for production purposes i.e. working capital and term finance for purchase of agriculture implements, farm mechanisation and development, transportation, etc.

The application and procedure, to be adopted under each Islamic mode of financing for agriculture, has also been provided in the guidelines.

The guidelines will facilitate Islamic banking institutions, particularly those extending their branch network and outreach in rural areas.

These guidelines also suggest that conventional banks with Islamic banking branches may offer these products through Islamic banking windows by using their conventional branch network.

The farming community at various platforms and individually have been demanding Islamic financing for agriculture purposes. However, there is lack of awareness of Islamic modes of financing among conventional agriculture financing bankers, and Islamic banking institutions are also naive to the requirements and business cycles of the agriculture sector.

The initiatives of the SBP have paid dividend in the form of robust increase in agricultural credit disbursements, from Rs39 billion in 2000 to Rs212 billion in FY08.

Islamic banking is also robustly expanding in the country and almost all major conventional banks have opened their stand-alone Islamic banking branches in addition to six full-fledged Islamic banks operating in the country.

So far, 313 branch licences have been issued in the country. Islamic banking institutions are expanding their network in rural areas through separate branches and windows.