2020 will be remembered as the year of COVID-19 and how it brought about significant changes in the way businesses will be conducted, including Islamic agricultural finance. The majority of the OIC countries are either primarily agrarian or net importers of food, hence food security is of paramount importance. This is reflected in the need to create, operate and finance operations throughout the food value chain, from production in the primarily agrarian Islamic communities in Africa and parts of Asia to the net food importers in the oil-dependent Arabian peninsular countries.
A paradoxical feature of 2020 was the low oil and gas prices, as well as the disruption in global supply chains, indicating tha the Arabian peninsular countries need to develop their food production capabilities by investing in sustainable agriculture using technology within their borders.
If IsDB member countries leverage their unique position as a combined block, in the sense of a common market, the member countries’ global value chains shall be able to tackle their short- and medium-term challenges of food security. This would be done by the surplus fund nations investing in the primarily agrarian fund-deficit countries with vast tracts of land. This strategy would have the potential to increase their agricultural production significantly and also produce value-added processed foods, hence increasing their agricultural value-added market share in the global economy.
Review of 2020
On the 22nd June 2020, the Food and Agriculture Organization of the United Nations (FAO) and the IsDB signed a new agreement and action plan. This action plan focuses on agriculture-related business development, technical assistance and capacity development. This relationship was formalized by the signing of an MoU to focus on project design/implementation, policy advice and knowledge-sharing to increase the collective impact of both the FAO and the IsDB’s work in the agricultural sectors. This is the most significant partnership that will impact agricultural financing in Muslim-majority nations.
Another significant milestone was the renewal of the IsDB–International Fund for Agriculture Development (IFAD) cooperation and cofinancing framework agreement originally signed on the 3rd May 1979, as well as the joint IsDB–IFAD action plan for 2020–22. The agreement includes a tentative cofinancing target of US$500 million (US$250 million from each institution).
In the case of the IFAD, this amount shall be subject to the three-year cycle of its performance-based allocation system. The IFAD and IsDB will also consider staff exchange opportunities under the agreement to facilitate its implementation.
From 1980 until now, the two institutions have cofinanced 20 projects in Albania, Azerbaijan, Gambia, Indonesia, Mali, Mauritania, Morocco, Pakistan, Senegal, Sudan, Tunisia, Turkey and Yemen.
Apart from the macro-level institutional players, individual players in Islamic fintech have in 2020 made significant strides in the distribution of financial products using technology and also in agritech developments via collecting better data for dissemination to decision-makers on weather, yields and crop pricing, leading to better pricing of products.
Preview of 2021
The future of Islamic agricultural finance will be, or has to be, driven by technology. Whether the technology relates to improved varieties of food crops with higher yields, or weather-related information to enable farmers to plan better, data-driven information on crop pricing, agri-Takaful product pricing or data-driven pricing of financing of farmers, these will all require innovation in fintech to be transmuted to advances in agritech. The technologies to be utilized include blockchain technology to track produce from farm to the table, robotic process automation, internet of things and artificial intelligence.
Another key thing would be increased technical assistance and training in best practices for farmers remotely, using advances in communication technology to increase harvest yields — this may include genetically modified food crop varieties, which are high-yielding and disease- and pest-resistant.
Furthermore, due to the aforementioned advances, and changes in value post-COVID-19, we expect to see an increase in financial inclusion through greater outreach of Islamic microfinance institutions, creating full-cycle Islamic finance-based agricultural products.
Better data availability and technology to monitor weather patterns and tools developed to make optimal use of water and produce water from wastewater in cities — which could be used in irrigation — would lead to crop yield stability and price stability of staple food and commercial crops, and also increase the ability of better actuarial pricing of Takaful products for both livestock and crops. Furthermore, advances in Islamic fintech will enable more economical, effective and efficient distribution of Islamic Takaful products and general financing products.
Technology, data and communication developments and a more value-based society — which is expected to develop in the post-COVID-19 era — will lead to better full-cycle Islamic agricultural finance products. Technological and communication improvements would improve obtaining data from remote places, dissemination of information by and to governments and quasi-government bodies about agricultural practices and assist in developing responsive Islamic agricultural financial products and their distribution to farmers in remote places in Asia and Africa. This could lead to the synchronization of agrifintech and this would be the actualization of the values of Maqasid Shariah.
Mohamed Ebrahim is CEO of Ace Financial Advisory. He can be contacted at [email protected]