A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Buerhan Saiti; Muhibullah Afghan; Nazrul Hazizi Noordin Article Financing agricultural activities in Afghanistan: a proposed salam-based crowdfunding structure ISRA International Journal of Islamic Finance Provided in Cooperation with: International Shari'ah Research Academy for Islamic Finance (ISRA), Kuala Lumpur Suggested Citation: Buerhan Saiti; Muhibullah Afghan; Nazrul Hazizi Noordin (2018) : Financing agricultural activities in Afghanistan: a proposed salam-based crowdfunding structure, ISRA International Journal of Islamic Finance, ISSN 2289-4365, Emerald, Bingley, Vol. 10, Iss. 1, pp. 52-61, http://dx.doi.org/10.1108/IJIF-09-2017-0029 This Version is available at: http://hdl.handle.net/10419/236918 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ www.econstor.eu The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0128-1976.htm IJIF 10,1 Financing agricultural activities in Afghanistan: a proposed salam- based crowdfunding structure 52 Buerhan Saiti Department of Islamic Economics and Finance, Received 7 September 2017 Istanbul Sabahattin Zaim Universitesi, Istanbul, Turkey, and Revised 19 October 2017 17 December 2017 9 March 2018 Muhibullah Afghan and Nazrul Hazizi Noordin 13 March 2018 Institute of Islamic Banking and Finance (IIiBF), Accepted 14 March 2018 International Islamic University Malaysia, Kuala Lumpur, Malaysia Abstract Purpose – This study aims to explore the potentials of adopting salam-based crowdfunding for financing the agricultural sector in Afghanistan. Design/methodology/approach – It adopts a triangulation approach, consisting of a number of methods used in gathering relevant information about Afghanistan’s agricultural sector, the concept of crowdfunding and salam (forward sale) contract. These methods include library research, reviewing documents provided by Afghanistan’s banks and semi-structured interviews with Islamic finance experts. Findings – This study finds that salam-based crowdfunding is a viable Sharīʿah-compliant investment platform, which may offer some advantages for both potential investors and farmers or entrepreneurs. Originality/value – The novelty of this paper lies in the proposed structure of salam-based crowdfunding. Keywords Afghanistan, Crowd-funding, Islamic social finance/Islamic finance, Salam Paper type Research paper Introduction Afghanistan is an underdeveloped agricultural country that has faced major constraints in achieving financial sustainability and sustaining economic development in recent years. Afghanistan’s economy is predominantly dependent on the agricultural sector. For instance, irrigated wheat, which is the country’s major crop, contributes on average 6.3 per cent of the nation’s annual gross domestic product (GDP). The livestock and horticulture subsector covers almost 14 per cent of land and employs more than 2 million people (World Bank, © Buerhan Saiti, Muhibullah Afghan and Nazrul Hazizi Noordin. Published in the ISRA International Journal of Islamic Finance. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be ISRA International Journal of seen at http://creativecommons.org/licences/by/4.0/legalcode Islamic Finance The authors are deeply grateful to the editors and the anonymous reviewers for their helpful Vol. 10 No. 1, 2018 pp. 52-61 comments, which improved the quality of the paper greatly. The authors acknowledge and assume Emerald Publishing Limited responsibility for any other mistakes or errors within the manuscript. The remaining mistakes 0128-1976 DOI 10.1108/IJIF-09-2017-0029 belong to authors. 2014). However, 40 years of war and a series of severe droughts have seriously affected Financing Afghanistan’s agricultural sector (Miller, 2006). Apart from that, the country’s agricultural agricultural sector is said to be underutilised for a number of reasons. Firstly, there are large areas of fertile land in many provinces that are left idle owing to a lack of financing (Kawasaki et al., activities 2012). Secondly, the majority of farmers are unbankable and financially excluded. Farmers who do have banking access mostly cannot afford to obtain loans from banks owing to high interest rates and a lack of collateral (McCusker, 2005). Withaviewtoreducingrelianceonimportedgoods, the government is set to further develop 53 the country’s agricultural sector by exploring possible financing means offered by Islamic finance. It is anticipated that this movement to rejuvenate agricultural production is critical to the reconstruction of Afghanistan (Kawasaki et al.,2012). The level of public awareness and acceptance of Islamic finance in Afghanistan has radically improved over time. Currently, 7 out of the 17 licensed financial institutions offer Sharīʿah-compliant services in the country. The country’s nascent Islamic finance industry has promising prospects. This paper, however, explores the possibility of adopting salam-based crowdfunding, a viable Islamic financial product innovation that is relevant to meeting the financing needs of the agricultural sector. The introduction of salam-based crowdfunding is imperative to the development of Afghanistan’s agricultural sector, primarily for production of seasonal foods and crops. Given the volatile and risky nature of agricultural markets, the features of the salam (forward sale) contract are anticipated to soothe commodity price fluctuations and push the country’s productivity level upward (Kaleem and Abdul Wajid, 2009). The International Fund for Agricultural Development (IFAD, 2009) avers that not only local farmers, but also foreign-owned plantations, processing factories, storage facilities and fertiliser companies may need third-party financing to carry out their businesses. However, a number of factors frustrate the development of adequate financial services in rural areas in most developing countries. One of the important factors is transaction costs, which are higher in rural areas than urban areas owing to a more dispersed population and weak infrastructure. This study adopts a qualitative approach to explore the potential of salam-based crowdfunding as a mode of financing the agricultural sector in Afghanistan. Relevant literature on salam and crowdfunding has been reviewed; The Bank of Khartoum’spracticeofsalam transactions has been examined, and Islamic finance experts have been interviewed on the subject. This study is exploratory in nature as salam-based crowdfunding is still at a conceptual or incipient stage and is yet to be implemented in the market. The novelty of this paper lies in the proposed structure of salam-based crowdfunding. The rest of this paper is structured as follows. The next section provides the background of Afghanistan’s agricultural sector and Islamic financial services development. The paper then reviews the concept of salam-based transactions and crowdfunding available in the existing literature. The following section describes the proposed structure of salam-based crowdfunding, and the last section summarises and concludes the paper. Afghanistan’s agricultural sector and Islamic finance Background of Afghanistan’s socio-economy Afghanistan is listed in the United Nation’s (UN) List of Least Developed Countries (LDCs). The country’s economy has been adversely affected by a series of foreign invasions and civil wars, which have led to the current lack of investment. The International Monetary Fund (IMF) has labelled Afghanistan as an underdeveloped low-income country that has experienced high inflation and moderate socio–economic growth and stability over the last 15 years (IMF, 2016). Recent data from the Asian Development Bank show that 39.1 per cent of the population in Afghanistan lives below the national poverty line. According to the IJIF World Bank (2014), despite the economic recovery under the post-Taliban regime in 2001, 10,1 the country is still experiencing Third World problems. These include providing clean drinking water, adequate medical facilities and affordable housing and ending the high dependence on foreign