How the jurists solve partnership problem in the agricultural activities??
Crafting agricultural product and loss sharing (aPLS) in the place of profit and loss for Islamic agricultural finance.
First and foremost, this article which was written by Muhammad Hakimi Bin Mohd Shafiai discussed about the principles used in financing the agricultural industries according to the Islamic jurisprudence. Consequently, in order to solve the riba-based financial issues, partnership contract is commonly introduced and used by the jurists as it proposed an equitable risks and profits sharing. In addition, partnership contract is based on some principle such as mudharabah, musharakah and etc.
The author focussed on al-mudaraba, al-musharaka, al-muzara’a and al-musaqa concept with a brief explanation on the definition and practices in economy activities based on Islam. Furthermore, we will be exposed on a several example of partnership contract implemented on agricultural activities and some of inappropriate practices by financial institutions on this issue.
Firstly, al-mudaraba is defined as a contract between a contracting parties comprised of the capital provider (rab al-mal) and the entrepreneur (mudharib) to run the capital in order to generate profit. Meanwhile, al-musharaka in definition is a contract between two or more parties on a mutual agreement whereby the capital were contributed by all parties and they will share the profit and losses occurred. Therefore, al-mudaraba contract is a profit sharing agreement and al-musharaka contract is a joint-venture between both the capital owner and the entrepreneur.
Furthermore, the jurist opinions were varied in determining the type of capital contributable by the investors or rab al-mal. Some opinion argued that capital can be either in the monetary or assets form as stated by Akhtar (1993) and Siddiqi (1973). However, based on the jurist consensus, it is agreed that the capital contributed in partnership must be in the liquid form or monetary unit to avoid any dispute and conflict when the profit were distributed.
Since this two contracts were seem very similar, it were defined as the profit-sharing contract in Islam and both parties will also share the losses inquired too. The difference between both contracts is the capital owner in al-mudaraba contract, will suffer the loss of his capital or money invested but not in al-musharaka contract since the profit/losses will bear by all parties. Thus, these principles are often put together known as Profit and Loss Sharing (PLS) scheme by the Islamic financial institution practitioner.
Next, the author also discussed about the contract of al-muzara’a and al-musaqa used as a partnership contract specifically on agriculture. Originally this principle was not clearly stated in Quran and Sunnah but the jurists deduced this principle from history of khaybar with a certain condition to make it valid.
Majalla defined al-muzara’a contract as an agreement between the landowner and the farmer whereby the landlord give his land for the cultivation and share the crops. Contemporary jurist defined it as a joint-venture or partnership in farming whereby two or more person invest in an agricultural activities. Meanwhile, al-musaqa is an agreement between the owner of some tree and the farmer who will take care of it that the fruit will be shared as agreed (Majalla). In other words, it is contract of someone who owned a fruit-bearing tree with an individual who is assigned to tend the tree and the harvested fruit will be divided among them.
The capital in these contracts was debated among the jurists on the basis of either land and seed are considered as the capital from a landowner or not. Some jurists oppose land as a capital since there were no loss will happen on land and it cannot be used in the entitlement of profit. Most of them agreed that land as a form of capital by arguing that it is similar with the capital in al-mudaraba contract. In short, land is regarded as a factor that enables the production and it is can be utilized for production in the same way as money.
Moreover, in order to understand the practice of al-muzara’a and al-musaqa in partnership, it is called as agriculture Product and Loss Sharing (aPLS) and differed with the Profit and Loss Sharing (PLS). This is because al-muzara’a and al-musaqa has a classical form of sharing which is sharecropping or output sharing instead of a profit-sharing mechanism imposed on al-mudaraba and al-musharaka. Most of the classic and modern jurists agreed that the common aspect of profit-sharing in al-muzara’a and al-musaqa is the output is share and somehow, a limited flexibility in distributing the expenses.
In addition, the jurists also has list a few salient feature of al-muzara’a and al-musaqa to be recognised as a partnership contract as:
1. Sharing of inputs of production
2. Sharing the profit or loss
3. No stipulated amount of returns
4. A partner relationship; not a debtor and creditor
Despite of the many principles introduced by the jurists, the application should be emphasized in order to achieve the objectives to make sure the transaction is according to the Islamic laws. Every contract developed in Islamic economics has a specifics purpose to avoid interest-based transaction especially in activities related to Islamic bank and finance institutions. One of inaccurate practices of a contract is the uses of al-musharaka contract in the agricultural activities.
An example of inaccurate implementation is to combine the al-musharaka and al-musaqa into a single scheme in agriculture. This scheme allow the bank to provide most of the agricultural input meanwhile the farmers will contribute their efforts or labours and the operating expenses incurred will be shared between them. Al-musaqa was applied to the farmers in providing the equipment involved in cultivating the agricultural land. The other inaccurate practices is to understand that al-musharaka concept is a universal principle applicable in all types of transaction.
Based on the precise researches done by the jurists on the partnership contract of agriculture land some would agree that al-muzara’a and al-musaqa are more suitable for sharecropping but some of them were opposed in this. By claiming that both concept is similar to the concept of sharecropping and in line with the fundamental aspect of agricultural partnership on sharing the crops rather than the profits. For instance, according to some scholars the sharecropping is quite similar to the profit sharing and loss in a trading activities has sum up to the contrary opinion which is al-mudaraba and al-musharaka are also relevant in making an agriculture partnership agreement.
In conclusion, there are a few scheme proposed by the jurist in practicing the agriculture product and loss sharing (aPLS) by the financial institution. Based on the contract suggested by Abu Yusuf, the first scheme is the landowner will provide the agriculture input which are the land, seeds, tools and animals while farmers are responsible in contributing their efforts. Second, only the land was provided by the landowner and the rest will be undertaken by the farmers including the tools and machineries. Third, the landowner need to provide the land and seeds as the farmers will take care the rest of the process.
Lastly, the agriculture Product and Loss Sharing (aPLS) is different with the Profit and Loss Sharing (PLS) in the terms of the nature of the transaction and the implementations. It is completely clear that al-muzara’a and al-musaqa are based on sharing the crop instead of the profit sharing which is more relevant to the trading activities.
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