Shariah Financial System: An Alternative Lifeline for the Less Privileged Farmers?

SHARIAH FINANCIAL SYSTEM: AN ALTERNATIVE LIFELINE FOR

THE LESS-PRIVILEGED FARMERS?

It is already indubitable that most farmers are trapped in the vicious labyrinth of perpetual poverty. Due to their depressed conditions, many of them consider farming as just a hand-to-mouth existence, or perhaps their decisions to stay on and take farming as a livelihood could also mean a number of things – perseverance, resilience and/or resignation. The farmers are poor because the economic activity that they are in has been under-funded. The absence of sufficient working capital curtails their output and further demonstrates the inability of the government to even liberalize the loan policies of its financial institutions.

A number of studies have been conducted pointing to the availability of credit facilities as one of the vital factors influencing farm production output. Among these studies, as cited by Miñoza (12-13), are those of Kimpo (1962) and Lu (1973). Moreover, in a study of farming in Argentina, small-scale farmers appeared as marginal operators due to their limited farm holdings and scarce capital. In effect, they remained as subsistence farmers with limited areas of improving their production (Fogg 271).

Presidential Decree (PD) 717

Despite the formulation of various policies and programs geared towards helping the farmers increase their production, additional capital remains a major problem. In previous agricultural development programs, provisions for credit allowed the farmers to acquire additional inputs that significantly helped increase their productivity. Foreign borrowings have been utilized to strengthen the credit aspect of agricultural production programs. Presidential Decree 717, more precisely known as the Agri-Agra law, was also issued by the Marcos government primarily to mandate banks to set aside 25 percent of net funds generated for agricultural loans (15 percent) and for agrarian reform beneficiaries (10 percent). Pursuant to its original provisions, financing under the “15-percent agri” component includes loans and advances for activities that cover production, processing, marketing, storage and distribution. For the 10-percent agra complement, PD 717 identifies tillers, tenant-farmers, settlers, agricultural lessees, amortizing owners, owner-cultivators, farmers’ cooperatives and compact farmers as agrarian reform beneficiaries. For the financing to be Agri-Agra eligible, beneficiaries must use the funds for the acquisition of work animals, farm equipment, machinery, inputs as well as in the operations of the different phases of the economic cycle (Ravalo C3).

Although the government has put in place other agricultural credit programs since then, the Agri-Agra law unmistakably continues to be the most prominent. It continues to be the largest source of funding for agriculture-related activities.