Journal of Islamic Monetary Economics and Finance, Vol. 9, No. 3 (2023), pp. 443 - 464
p-ISSN: 2460-6146, e-ISSN: 2460-6618

DESIGNING A WAQF-BASED AGRICULTURAL
FINANCING MODEL
Rifaldi Majid1 and Raditya Sukmana2
Faculty of Economics and Business, Diponegoro University, Indonesia,
rifaldimajid@lecturer.undip.ac.id
2
Faculty of Economics and Business, Airlangga University, Indonesia, raditya-s@feb.unair.ac.id
1

ABSTRACT
Limited access to financing, followed by the difficulty in the absorption of crop
yields, is still a fundamental problem for farmers. This study proposes an integrated
agricultural low-cost financing model based on cash waqf along with its parameters
and risk mitigation. The proposed model is developed from a literature review
underpinned by in-depth interviews with 17 experts (regulators, academia, and
practitioners), followed by a Focus Group Discussion, and finally validated by the key
experts. Findings reveal that cash waqf fund could be used as a low-cost financing
with several risk mitigation procedures to finance farmers who have hardship
accessing financing. Through institutional engineering, a nazhir (overseer) will
involve a specialist vehicle in developing a value chain to facilitate off-takers ready to
buy farmers’ crops at competitive prices. The proposed model employs MudharabaSalam and Ijara schemes. The associated risks can be mitigated by a comprehensive
feasibility study, using takaful/guarantee or reserve funds and financial restructuring.
This model is expected to improve farmer welfare and national food security and
deepen inclusive Islamic financial products in the agricultural sector.
Keywords: Agricultural financing, Waqf, Institutional engineering, Food security.
JEL classification: D25; D64; G32; Q14.
Article history:
Received
: February 1, 2023
Revised		
: April 4, 2023
Accepted
: August 31, 2023
Available online : September 29, 2023
https://doi.org/10.21098/jimf.v9i3.1686

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Designing a Waqf-Based Agricultural Financing Model

I. INTRODUCTION
Limited access to capital is a vicious circle that results in farmers’ low productivity
growth and welfare (Ammani, 2012; Ministry of Agriculture, 2020). Ease of access
to financial services is a crucial driving factor for all activities in the value chain in
the agricultural sector. Fulfillment of access to financial services is also a significant
factor determining the success of the production process through increasing access
to inputs such as fertilizers and superior seeds. This bears important implications
for eliminating barriers to participating in the market and contributing to poverty
alleviation (Appiah-Twumasi, Donkoh, & Ansah, 2020).
In reality, there are many small farmers in rural areas still hampered by
financing access due to complicated and time-consuming administrative
requirements as well as the need for additional guarantees as they are unbankable
by formal financial institutions (Ministry of Agriculture, 2015, 2020; Moh’d,
Omar Mohammed, & Saiti, 2017). Other factors that need attention are related to
financing schemes/patterns that would improve welfare and remove farmers from
the poverty chain. These factors are certainty in the absorption of crop yields and
price stability. The risk of crop failure followed by price fluctuations (especially at
harvest) or low market prices are also factors that drive farmers to be burdened by
increasing debts (Ridlwan, 2016).
This situation ultimately disperses the preference of farmers to concentrate on
one particular commodity. In addition, the impact is that farmers cannot enjoy the
revenues/benefits from additional production (Bantacut, 2014), especially amid
the high-interest expense that must be met (Ashari & Saptana, 2016). Moreover,
from a sharia perspective, the application of the interest system in debt-receivable
transactions substantially is not in line with sharia principles that uphold the value
of fairness and equal rights and obligations in terms of risk coverage (Ashari &
Saptana, 2016).
Meanwhile, Islamic finance, which consists of commercial and social finance,
has tremendous potential to be optimized and become an alternative that
benefits all parties to improve the welfare of farmers, namely through cash waqf
instruments as a source of cheap financing. As a social and financial instrument,
waqf has been widely studied and applied in various economic sectors. Waqf has
a strategic role as a tool to achieve financial inclusivity and the fulfillment of socioeconomic justice (Shaikh et al., 2017; Zauro et al., 2020) which can be seen from the
strategic role of waqf in various fields.
In the agricultural sector, waqf assets in the form of land can also be managed
with a muzara’ah, musaqah, or other production sharing schemes as an alternative
solution for converting agricultural land as proposed in many studies (Ali
Azizan, Muhamat, Syed Alwi, Ali, & Abdullah, 2022; Majid, 2021; Moh’d et al.,
2017). More specifically, Ahmad (2018), Azganin, Kassim, & Adam (2021), Khan,
Ghafoorzai, Patel, & Shehbaz (2021), Majid (2021a), Moh’d et al. (2017), Ningrat
& Nurzaman (2019), and Olaniyi, Thaker, Thaker, & Pitchay (2014) design waqfbased agricultural financing models, which are integrated with crowdfunding
and microfinancing, as an initial capital and a means to procure equipment and
machines used in the production process.
However, the previous research is generally limited to a conceptual model
without any validation by experts such as academics, regulators, and practitioners.

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Previous research has not been able to holistically solve the problems of access
to financing and the procurement of agricultural infrastructure through formal
Islamic financial institutions as well as the associated risks, especially in terms
of efforts to maintain the integrity of the cash waqf principal. In addition, the
proposed financing model remains unclear with regards to the involvement
of parties and their roles. Thus, this study fills the gap by designing a robust
agricultural financing model using cash waqf instruments by conducting a
thorough literature review strengthened by input from relevant experts so that
the proposed model is inclusive and integrated with sharia-compliant contracts to
overcome the problems of limited financing and of financing risk.
This paper consists of five sections. The first section depicts the background,
research gap, objective, and novelty. The following section reviews the background
theory and related literature. The third section discusses data and research
methods, and the remaining sections present results, discussions, conclusions, and
recommendations.
II. LITERATURE REVIEW
2.1. The Concept of Cash Waqf and Its Permissibility
Waqf is an Arabic term which means to restrain or to hinder (AAOIFI, 2017).
Waqf is a jariyah deed that provides a steady and permanent flow of benefits to
beneficiaries (Obaidullah, 2015). Many scholars state that the pillars of waqf consist
of four components, namely wakif (people who do waqf), mauquf (objects that are
donated), mauquf ‘alaihi (beneficiaries of waqf), and shighah (ijab-kabul). A wakif
must be intelligent, mature, waqf of his own accord, and have independent status
as the owner of the waqf property. Mauquf is an object that can be used according
to sharia (maal mutaqawwim), an object that does not move, can be handed over;
the object is clearly known and is the perfect property of the wakif. Mauquf ‘alaihi
is the beneficiary of the results of waqf management which is required to be partyoriented to goodness and does not aim at immortality (Rozalinda, 2015).
In its development in the contemporary era, waqf assets are not only limited to
property that is not easily damaged, such as fixed property, land, or buildings, but
has also been applied to other objects known as cash waqf, share/stock waqf, sukuk
waqf, takaful waqf, and other waqf scheme and instruments. Cash waqf itself is a
cash waqf fund that is managed productively to support services to humans (as
mauquf ‘alaihi) in the name of Allah to get a reward or charity (Indonesian Waqf
Board, 2020; Mafaza, Umam, Arief, & Lahuri, 2020). The permissibility of cash
waqf is approved by several fiqh institutions and Islamic financial institutions that
issue sharia standards with a global scope. Accounting and Auditing Organization
For Islamic Financial Institution (AAOIFI) in the sharia standards No. 33 concerning
to waqf year 2007 in the article “The Waqf Property” No. 3/4/3/2 states that waqf is
allowed in the form of money. The profits generated from the management of the
waqf principal (in the form of money) can be distributed to the public, while the
principal is maintained.
The management of cash waqf can be channeled in the form of loans without
usury or in the form of mudharaba investments where the profits from the
investment are channeled to the mauquf ‘alaihi (AAOIFI, 2017). The international

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Designing a Waqf-Based Agricultural Financing Model

fatwa institution Majma Fiqh Al-Islamy in the 15th session of 1425H held in
Muscat, Oman, also agreed on a decision regarding the permissibility of cash
waqf (Hamza, 2017). Specifically in Indonesia, the permissibility of cash waqf has
been formally legalized considering the great benefit that other objects do not
have through a fatwa issued by the Fatwa Commission of the Indonesian Ulema
Council (MUI) on May 11, 2002 (Komisi Fatwa MUI, 2002).
2.2. General Portrait of Agricultural Financing in Indonesia
As an agricultural country, Indonesia has an excellent opportunity to achieve selfsufficiency in food (rice), as is also the strategic plan of the ministry of agriculture
for 2020-2024 (The Central Bureau of Statistics, 2020; Ministry of Agriculture,
2020). One of the fundamental problems contributing to the effort to fulfill food
self-sufficiency is the availability of access to financing for rice farmers. Farmers
are more likely to choose the services of moneylenders (lenders) to get capital
quickly, even though they have to pay back at a high-interest rate (Ashari &
Saptana, 2016; Supriatna, 2009). Most agricultural sector business financing comes
from credit institutions, which are already in operations in rural areas (Ashari &
Saptana, 2016).
Supriatna (2008, 2009) in his research concludes that there are two types of
micro-scale credit markets at the rural level, namely (1) formal credit markets
consisting of (a) non-program or commercial loans such as BRI Village Units,
Credit Banks People (BPR), cooperatives and pawnshops; and (b) credit programs
such as Farmer Business Credit (KUT) and Food Security Credit (KKP) from APBN
funds and (2) informal credit markets such as services provided by moneylenders,
production input/output traders, and rice mills. Each of the credit providers above
has a unique pattern of service in terms of the characteristics of the credit provided,
starting from the target, application rules, types and times of repayment, as well as
the availability of supervision and business development facilities run by farmers
as the majority of customers (Ashari & Saptana, 2016; Supriatna, 2008, 2009).
1) Non-Program Financing Institutions (Commercial)
Eligibility standards in lending are formally determined where the credit
interest is commercial. Institutions included in this type of financing category
are those run by BRI Village Units or BPRs at the village level, multi-purpose
cooperatives (KSU) or village unit cooperatives (KUD), and pawnshops
(Supriatna, 2009). These institutions are expected to support the agricultural
sector by procuring production inputs, farming tools and equipment,
and marketing agricultural products with low-interest rates. Even so, the
accessibility of farmers to these institutions is still relatively low due to a
collateral requirement in the forms of land and building certificates (Supriatna,
2009).
2) Programmed Credit Financing Institutions
Under the programmed Credit Financing Institutions, credit is specifically
intended to support a program that the government usually finances. Usually,
government agencies are directly involved in providing credit to farmers
as program implementers. This type of credit combines the advantages of
formal institutions (low-interest rates) with informal institutions (using land

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certificates belonging to group administrators as collateral). The general credit
characteristic is to apply a low-interest rate (3-18% a year) to spur growth in
the agricultural sector while at the same time encouraging rural economic
growth (Ashari & Saptana, 2016). Concerning tenure, this loan uses a seasonal
repayment scheme, which ranges from 6 to 24 months. The source of credit
funds comes from the liquidity funds of the Central bank, so the risks that
arise are the responsibility of the government (Supriatna, 2009).
3) Informal Financing Institutions
Informal financing institution have been in existence in rural areas long
before formal institutions. Most of these informal credit services are provided
by lenders (money lenders), generally wealthy farmers, moneylenders,
production input traders, crop traders, agricultural production traders, rice
millers, and economic actors in rural areas (Ashari & Saptana, 2016; Supriatna,
2009). The general characteristic of this credit service is that it applies a much
higher interest rate than formal credit institutions do (Ashari & Saptana,
2016), but the credit requirements are relatively less stringent as there would
be no collateral or would be based on trust (Supriatna, 2009). The informal
credit institutions are generally more attractive to farmers than formal credit
institutions based on the trust built between creditors and farmers as debtors
(Supriatna, 2009).
2.3. Previous Studies
Cash waqf is a potential source of low-cost financing that can be disbursed in
the form of social or commercial transactions based on the conditions and needs
of farmers, such as in the context of fulfilling pre-production initial capital,
procuring seeds, using tractors to plow rice fields, rice milling equipment,
and provision of other agricultural infrastructure. Furthermore, Shafiai, Moi,
& Ahmad (2015) recommend cash waqf to finance farmers using the concept
of muzara’a and musaqa. The same model is also developed by Moh’d et al. (2017)
in financing Clove farmers in Nigeria. In this model, a waqf institution provides
waqf land as a means of production using a muzara’a scheme to farmers as well
as provides logistics (supply chain) and other needs such as seeds, agricultural
chemical equipment, storage facilities, machinery and transportation as well
as support from relevant experts. More comprehensively, after reviewing the
failure of prevailing financing models provided to farmers, which have been
generally interest-based, Olaniyi, Thaker, Thaker, & Pitchay (2014) design a WaqfMuzara’ah–Supply Chain model (WMSCM) scheme to provide solutions in the
form of financing of the agricultural sector in Nigeria.
As regard to cash waqf, Ahmad (2018) develops a model using a temporary
cash waqf integrated with the Salam contract in the context of financing rice farmers
in Indonesia. Furthermore, to take advantage of the development of technology
and information, Khan et al. (2021) design a waqf-FinTech-based farmer financing
scheme to finance short-term and long-term projects of farmers. Meanwhile,
Ningrat & Nurzaman (2019) develop a sharia-compliant community-based
financing model using a sharia FinTech platform and integrate it with all actors
in the agricultural value chain. The same is also proposed by Azganin, Kassim,

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Designing a Waqf-Based Agricultural Financing Model

& Adam (2021) through a farmer financing model using the waqf crowdfunding
model (WCM) in collaboration with waqf institutions for investment in agricultural
projects initially proposed by farmers.
Majid (2021) designs a financing model that integrates commercial finance
(with Salam and Muzara’a contracts) and social finance (with cash waqf and waqf
land), where farmers who do not own land can farm on waqf land managed by
Nazhir. Meanwhile, the surplus cash waqf fund managed by BMT, which also acts
as nazhir of cash waqf, is distributed to poor farmers as additional income and a
means of risk mitigation in the event of crop failure or delays in the delivery of
commodities purchased from farmers using Salam contracts.
The financing model for the waqf-based agricultural sector in the previous
researches, is based on the well-known Muzara’ah and Musaqa contract schemes as
profit-sharing schemes in agricultural land management. A profit sharing scheme
for the management of agricultural land is generally used if the nazhir provides
waqf land as agricultural land. On the other hand, if the type of waqf used is cash
waqf, the Salam contract is the most preferred because it is considered capable of
responding to the farmers’ need for initial capital as well as being a solution to the
purchase of farmers’ crops. Meanwhile, some studies above have not yet explained
in detail how the role of nazhir/mutawalli in collaborating with off-takers is related
to harvest absorption. In addition, what is proposed by Azganin et al. (2021), Khan
et al. (2021), Moh’d et al. (2017), Olaniyi et al. (2014), and Shafiai et al., 2015) are
still not corroborated by primary data in the form of in-depth interviews based on
experts’ opinions. Thus, the model from previous studies remains quite simple
and has not been equipped with risk mitigation efforts. On this basis, this study
fills the gap by proposing a more detailed financing model with its risk mitigation
based on a literature review and the experts’ views.
III. METHODOLOGY
3.1. Research Methodology
This paper analyses existing documents ranging from personal archives to online
records, including journals, books, and reports, official documents, and print
media (McCulloch, 2004, p. ii) with the aims of making them more understandable,
describing and discovering phenomena, and generating theories (Ali Azizan et al.,
2022). In this research, the authors focus on Indonesia and on the potential of cash
waqf for low-cost financing for the agricultural sector by developing an integrative
financing model. To strengthen the analysis, the researchers conduct in-depth
interviews with experts (Creswell, 2014) consisting of regulators, practitioners,
and academics in waqf and agriculture. Besides, the expertise of each respondent
also becomes an input for designing the proposed model (Yin, 1989).
3.2. Data Types, Data Collection and Data Analysis
This study uses primary data and secondary data. The primary data in this
study come from in-depth interviews with experts/respondents consisting of
regulators, academics, and practitioners involved in waqf and agriculture in
Indonesia. Cobern & Adams (2020) in their research recommend that the number

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of respondents between 15-20 is a number that is quite representative for an indepth interview. In addition, O. Nyumba, Wilson, Derrick, & Mukherjee (2018)
also suggest the number of participants in the in-depth interview/Focus Group
Discussion is a minimum of 3 and a maximum of 21 with a median of 10. Based
on this, in this study, the authors select 17 experts. Five (R1 to R5) among the 17
experts are appointed as representatives of all experts to validate the proposed
model.
Table 1.
List of Experts
No

Respondent
Initial

1

AR

2

GSM

3

HT

4
5
6

ISB
BM
NH

7

ITS

8

F

9
10

AM
A

11

WNA

12

PW

13
14

JA
RAL

15

MW

16

WS

17

MG

Institutions/Expertises
Head of Sharia Compliance and Sharia Research in several Islamic Financial
Institutions.
General Chairperson of the Indonesian Farmers & Fishermen Association
(Intani), practitioner and consultant in waqf empowerment and financing.
Head of Nazhir Empowerment & Management Division Indonesian Waqf
Board (BWI)
Head of Center for Digital Research and Transformation BWI
Chairman of the Productive Waqf Forum
The Commissioner of BWI
Vice Chairman I BWI, Sharia Business Practitioner, expert in Islamic banking
and finance
Professor at Economics, Researchers at the Center for Tropical Horticultural
Studies of IPB (PKHT IPB), WTO Expert Team for Agriculture
Millennial Farmer (CEO of Kebun Berkah)
CEO of AgroWakaf
Senior Staff/Implementator of Productive Rice Waqf Program (WSP) Global
Wakaf
Lecturer in Department of Management, expertise in microfinance, BMT, and
Islamic social finance.
Expertise in Microfinance, BMT, social finance, Financial Technology.
General Manager of Wakaf Al-Azhar
Ambassador of Millennial Farmers Ministry of Agriculture (South Sulawesi
Province)
Head of Sub-directorate of Education, Innovation, and Cooperation of Zakat
and Waqf, Directorate of Zakat and Waqf Empowerment, Directorate General
of Islamic Community Guidance, Ministry of Religion, Republic of Indonesia
CEO of Goolive and Founder of Wakaf Tani Foundation

The authors also use secondary data from reputable International and National
journal articles, official documents in the form of roadmaps or strategic plans of
the Ministry of Agriculture and the Indonesian Waqf Board, official statistics,
books, reports, and other legal rules/regulations issued by relevant stakeholders.
All data collected are then analyzed with qualitative content analysis to provide
knowledge and understanding of the problem under study (Hsieh & Shannon,
2005). Researchers use data/sources and method triangulation techniques to

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Designing a Waqf-Based Agricultural Financing Model

strengthen the analysis. Triangulation of data/sources is carried out using several
data sources so that weaknesses in other data can be compensated for by the
strengths of additional data to increase the validity and reliability of the results
(Rugg, 2010, p. 14-15). In this study, the data obtained through documentation
will be cross-checked using the results of direct, in-depth interviews with expert
respondents and vice versa. Meanwhile, the triangulation is carried out by crosschecking between documentary results in previous journals/studies that need to
be reviewed more deeply from the implementation side in the field, compared to
data from in-depth interviews involving academics, regulators, and practitioners.
Thus, this in-depth interview method can cover the weaknesses of library research
methods so that it is hoped that the analysis to answer the problem formulation
can be more valid and feasible to be reviewed from an academic and practical side.
3.3. Research Steps
To strengthen the analysis to be more valid and robust, the researchers conduct
in-depth interviews with experts who are qualified to answer the problems raised.
The results of in-depth interviews and literature reviews are then used to propose
a model, which is then validated by representative experts (Yin, 1989).
Furthermore, the validated model is then passed to nazhir of cash waqf
(as the leading actor in the proposed model) and then tested to the public who
have interest in agricultural financing using waqf instruments. In the next stage,
suggestions, input, and or criticism obtained are accommodated to improve the
proposed model while continuing to conduct in-depth interviews (regularly) with
expert respondents to keep the finalization of the proposed model to be in line
with sharia and legal reviews as well as to be a profitable business embedded with
farmers’ empowerment.
IV. RESULTS AND ANALYSIS
4.1. Waqf and The Characteristics of Agricultural Financing
The proposed model in this study is based on the characteristics of the financing
needed by farmers (rice crops), which is adjusted to the characteristics of cash
waqf based on the literature, suggestions, and input from expert respondents
in the scope of agriculture and waqf at the national level. The following table
summarizes the characteristics of agricultural financing that can be accommodated
by cash waqf as a means of low-cost financing.

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Table 2.
Proposed Model Components
Components

Statement of Experts

“Wakif can come from individuals, the private sector, entrepreneurs,
corporations, government institutions” (ITS).
“The source of waqf funds can come from National Company CSR,
Waqif and
corporations related to the agricultural supply chain, banks, local
source of fund governments, etc” (ITS).
“This can be (from) waqf, infaq, or CSR. Not everything has to come from
waqf. In the implementation of the program, everything can come from any
funds, which is important according to its designation”. (RAL).
The Funding
methods

“Offline and online via digital platform” (ITS).

Object of
invesment to
gain return

“Several things must be considered in food crop agriculture when investing
in cash waqf. If the return is evident, for example, from fertilizer and
equipment, it can be calculated” (ISB).

Supporting
Researches

(Saiti, Afghan, &
Noordin, 2018)

(Saiti et al., 2018;
M. A. B. M. T.
Thaker, 2018; M.
T. M. A. Thaker,
Thaker, &
Pitchay, 2018)
(Ali Azizan et
al., 2022; Majid,
2021; Supriatna,
2008, 2009)

“Contracts to farmers still use tijarah (commercial) contracts, depending
(Ahmad, 2018;
on the financing pattern you want to implement. To purchase crops, you
can use Murabaha or share working capital with musharaka or mudharaba Azganin et
al., 2021; Ali
contracts, harvest purchase contracts (with salam contracts), etc. “ (ITS)
Azizan et al.,
“Regarding this Salam contract, it’s good. Because we are making a
2022; Hossain,
close-loop program, the point is to ensure there is an off-taker at the time of
Schemes of
Muhammad,
Akad/Contract planting so that it is harvest time” (F).
Jibril, & Kaitibie,
“It can also be done by buying and selling or renting seeds/fertilizers or
2019; Khan et
SAPRODI. Or, it could be by using a Salam contract, where Nazhir buys
al., 2021; Majid,
the farmers’ crops with a Salam (the 2nd salam) contract. Previously Nazhir 2021; Saiti et al.,
already had an end user who was ready to buy what Nazhir was selling”
2018)
(AR)
“The existence of the group can help minimize the risk of untrustworthiness,
Financing
(Supriatna, 2008,
fraud, a way of encouragement when difficulties occur, so it is a forum for
Channeling
2009)
exchanging ideas. And here there must also be assistance” (ISB).
“So when it comes to financing, the farmers are most happy with the
YARNEN (pay for harvest) scheme. So they get a loan in the form of money
(not in kind, production input) and then return it at harvest time” (F).
“Because it’s called agriculture, usually the system is YARNEN, so you pay
Refund
at the time of harvest.” (PW).
Scheme
“Look, the challenge in agriculture is that they have to wait until the
(Supriatna, 2008,
harvest, so if it is three months, they will produce it without getting
2009)
anything. So the production costs continue, without getting anything. For
example, chilies that produce four months of production, so during those
four months they will tend to continue to spend their savings funds” (AM).

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Designing a Waqf-Based Agricultural Financing Model

Table 2.
Proposed Model Components (Continued)
Components

Vehicle of
nazhir

Assitance
to Farmers
community

Scoup of
financing in
Value Chain

Value added
of product

Statement of Experts

Supporting
Researches

“This Saprodi shop is very worthy of being a business. So open a shop
that is a business built from waqf funds. Some of it is for operations
and production, so here it is playing again. In my opinion, this is more
sustainable” (AM).
(Azganin et al.,
“Then, the advantage is relatively easy for them to take seeds or fertilizer
2021; Ali Azizan
at the farmer’s shop, because the farmer shop knows, without the farmer’s
et al., 2022)
shop doing an assessment directly in the field, they already know that the
transactions of these people (farmers) are like what? he owns the land, then
he can ask people around him, so access to information is easy. So, for seeds
and other matters, in some areas, it is quite easy because of access to farmer’s
shops” (MW).
“In the context of agriculture, assistance can be provided (for example) by
(Ali Azizan
Amil Zakat Institutions (for example, LAZ Al-Azhar), which also assists
et al., 2022;
farmer-assisted groups. The more parties involved here, the more farmers
Supriatna, 2008,
2009)
feel supervised and responsible for using waqf funds” (AR).
“Margin for food crop agriculture (rice), the margin is relatively limited.
Except, when these farmers can produce added value from their products”.
(Ali Azizan et
(ISB).
al., 2022; Miller
“But, if you use cash waqf, then the financing is, I suggest if possible, the
& Jones, 2010)
farmer should not stop at the harvest in the form of grain. However, the
investment must go to the packaging” (ISB).
“Perhaps you have heard of how (sorry I said) when Dompet Dhuafa
developed “Sai” rice. This is very high-quality rice. These institutions have
ties to the campus, which have competence in this field. Learn from here.
What does it mean? It is possible to develop. Here, you can collaborate with
IPB Univ. It was using a cooperation scheme (musharaka)” (NH).
“So, if the waqf can be financed up to the market level, marketing, and
packaging level, the margin can be shared more comfortably between farmers (Ali Azizan et
and nazhir. Why?. Due to the domestic rice production capacity, today’s
al., 2022; Miller
demand is still greater; What does it mean? The market will absorb any
& Jones, 2010)
lousy rice. From production to marketing, entry to there, ensuring that the
product is delivered to the market”(ISB).
“In the meantime, it is left to the market mechanism. The advantage
here is that it uses a Salam contract, so it’s more fixed in terms of price
fluctuations. Then from the distribution side, we pack it up then deposit it in
the warehouse. There is added value here” (RAL).

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Table 2.
Proposed Model Components (Continued)
Components

Harvest
absorption

Use of
Insurance

Statement of Experts

Supporting
Researches

“In my opinion, farmers need a financing model; we can be sure that the
price (selling) is good—for example, KUR BRI. Here, firstly, BRI cannot
ensure that the goods will be taken; secondly, the price taken is a good price.
This is why farmers want to owe money to middlemen, because the goods
have been taken whatever the price. Middlemen will always follow market
prices. Why do so many go to middlemen? Because the middleman has
already solved the first problem, the goods must be taken, regardless of the
amount. That has solved the first problem” (AM).
“Finally, on the market side, how to ensure that waqf institutions can absorb (Ali Azizan et
farmers’ crops. That way, farmers will be more attached emotionally. Why
al., 2022; Miller
are they tied to middlemen? Because the middleman ensures that the farmers & Jones, 2010)
will take the results. If we have an institution that ensures the harvest will
be taken, that would be even better. These institutions are still lacking in us”
(AM).
The second problem is that the middleman cannot be sure. They only follow
the market benchmark price, whether there is a standard. However, in the
first case, farmers will benefit because regardless of the yield, the quality will
be whatever; good or bad, the middleman must take it, the difference will be
in the price” (AM).
“How to mitigate the risk so that the waqf principal remains? The second
(AAOIFI,
way out is with insurance, or other guarantee schemes” (ITS).
2017; Azganin
et al., 2021;
Badan Wakaf
Well, one of the risk mitigations is insurance” (F).
Indonesia, 2020)

Source: Processed by researchers based on the results of literature reviews and in-depth interviews with expert
respondents (regulators, academics, and practitioners)

4.2. Institutional Engineering and Risk Control
An institutional engineering mechanism is needed to harmonize and regulate
each component, which is the criteria for waqf-based agricultural financing
suggested by expert respondents in an alternative proposed model. This
institutional engineering is intended to determine the parties involved, their roles,
and their interactions in the proposed financing scheme under the components
that constitute the financing criteria. This is because, in managing cash waqf
(productive), especially in the agricultural sector, Nazhir cannot stand alone but
needs to collaborate, involving relevant stakeholders to achieve the sustainability
of the intended financing and empowerment program.
Nazhir left it to the experts. Indeed (generally), there are three parties. This condition
is identical to the concept of the Zam-zam tower. Nazhir handed over to contractors,
then contractors to tenants. So, the communication will be there later” (NH).
“If the risk is high and cannot be transferred, eg by making institutional engineering
first by forming a farmer group so that they can be jointly and severally borne, or there
is an offtaker of the harvest so that there is certainty, or there is a guarantee institution
scheme” (ITS).
In more detail, this institutional engineering also facilitates the proposed
model from the technical side of financing distribution to farmers whose aim is to

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Designing a Waqf-Based Agricultural Financing Model

minimize the risk of moral hazard to maintain the integrity of the principal cash
waqf managed by Nazhir.
“The existence of the farmer group can help minimize the risk of untrustworthiness,
fraud, a way of encouragement when difficulties occur, so it is a forum for exchanging
ideas. And here there must also be assistance” (ISB).
“Farmers are not financed individually, but in groups. The relationship with farmers
who are financed in groups can get financing not only for planting capital (initial)
but also in the process of milling the harvest. So if, for example, the farmer sells it
to the market, the model cannot be individual. It must be institutional). That’s why
now there is a farmer’s cooperative/GAPOKTAN/Farmers’ corporation, that’s why
it’s through there, not through individuals” (F).
4.3. The Proposed Model: Mudharaba-Salam and Ijara (MSI) Model
Based on the literature review as well as input from expert in in-depth interviews,
we conduct an analysis to design an alternative model of waqf-based agricultural
financing that accommodates the characteristics of agricultural financing. The
following is a proposed model adapted from the financing model of Ali Azizan
et al. (2022), Hossain et al. (2019), Majid (2021a), also the model implemented by
al-Azhar waqf which has been adjusted by the opinion of several experts in the
in-depth interview.

Source: Integration of Literature Review, Expert Judgements and Author Analysis

Figure 1.
The Proposed Model

Descriptions:
1) Wakif (individual, institution, or government) donate their cash waqf to nazhir
through a crowdfunding platform.
2) Funds collected are then forwarded to Nazhir. Nazhir, in this case, is the one
who can manage cash waqf funds professionally in the agricultural sector.

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455

3) Nazhir conducts self-management (as an entrepreneur) by forming a business
wing in the form of a shop or cooperative that sells agricultural facilities and
infrastructure (Saprodi Cooperative). This shop/cooperative has three business
units:
(1) Providing capital with a sharia-compliant scheme;
(2) Conducting buying and selling or leasing of agricultural inputs;
(3) Conducting leasing of milling machines to groups of farmers/farmers.
The Agricultural Saprodi shop/cooperative will act as a specialist vehicle that
generates profit to maintain the integrity of the waqf principal and distribute
the benefits/surplus of waqf to the mauquf’ alaihi. In addition, this specialist
vehicle will form a network of farmers’ supply chains by building good
relationships to find the right party to act as an off-taker for farmers’ harvests.
Under certain conditions, this specialist vehicle can act as a standby buyer,
ready to absorb farmers’ crops and then sell them to the market. Dompet
Dhuafa does this in its farmer empowerment scheme, where Social Asset
Management (SAM) is formed to play the same role.
“In certain contexts, SAM is a standby buyer/off-taker with a record that SAM
can enter the marketing network so that we can apply for this position confidently
and absorb farmers’ rice prices better than middlemen. So here, the production
process is assisted, we also buy the products” (BM).
The existing models proposed by Hossain et al. (2019; Majid (2021b) and
Shafiai et al. (2015) do not explain the nazhir mechanism in managing cash
waqf received. As for the proposed model, the authors develop the need for
a specialist vehicle that will act on behalf of Nazhir to finance, monitor, and
assist farming businesses.
4) Agricultural Saprodi Shops/Cooperatives cooperate with farmer groups to
absorb farmers’ crops (grain) by using the mudharaba muqoyyada scheme,
namely cooperation with business objects that have been determined by the
owner of the funds (shahibul maal). In this case, the agricultural production
shop/cooperative acts as the shahibul maal, and the farmer group acts as the
fund manager (mudharib).
5) Farmer groups buy farmers’ crops using the Salam contract, namely purchases
with 100% cash payments in advance for certain goods with detailed and
precise specifications (no gharar/uncertainty). At the same time, according
to the agreement, Salam objects (the agricultural commodities ordered) will
be delivered in the future. Here, it is agreed that the goods will be delivered
during the harvest season. By using the Salam scheme, farmers will get
certainty on the absorption of their harvest (grain) as well as get an upfront
payment which can be used not only for pre-production needs (Usmani, 2012)
but also for meeting family needs until harvest time (Majid, 2021).
“Regarding this Salam contract, it’s good. Because they are making a close-loop
program, the point is to ensure there is an off-taker at the time of planting so that
it is harvest time. He is no longer confused about where to sell his commodities (he
doesn’t have a market). If, for example, the Salam contract can be made, of course,
this is very good” (F).
The consequence of using the Salam contract is, namely, the nazhir must
be able to find parties ready to buy farmers’ crops. In this case, Nazhir has

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Designing a Waqf-Based Agricultural Financing Model

positioned the farmer group as a stand-by buyer, which has previously been
tied up with a mudharaba muqoyyada contract (point 4), so ​​that there is a
win-win solution that benefits all parties. Meanwhile, the farmer groups,
in coordination with nazhir can also prepare second-off-takers or potential
buyers such as supermarkets or markets (Majid, 2021).
“An important point that must be considered if Nazhir uses a salam (or parallel
salam) scheme is that it is necessary to prepare the end-user (buyer) who is ready
to buy farmers’ produce. In this case, we can collaborate with FinTech or village
officials” (AR).
6) During the harvest season, the farmer submits/sends the Salam object (which
is ordered) according to the specifications requested (at the beginning of the
contract) to the farmer group.
7) To process farmers’ crops which are still in the form of grain, into rice to get
value-added products, the Agricultural Saprodi Shop/Cooperative provides
milling machine rental services at competitive prices to farmers through
farmer groups.
8) Margin on milling machine rental is forwarded to the Agricultural Saprodi
Shop/Cooperative.
9) Farmers’ groups sell unhulled rice to standby buyers/off-takers who are
partners from Nazhir’s link/network in the form of Islamic boarding schools,
SME traders, or supermarkets in the agricultural sector.
10) Standy buyers/off-takers pay a margin on the rice they buy from farmer groups.
11) The sales proceeds received are then deducted by all operating expenses,
and net profit is obtained. This net profit is divided into X% for agricultural
production cooperatives, while farmer groups get Y%, based on the previous
agreement.
12) The total margin from the results of (1) milling machine rental and (2) profit
sharing on business management by farmer groups is then forwarded by the
agricultural production shop/cooperative to Nazhir. In this case, all profits are
passed on to Nazhir because the agricultural production shop/cooperative
only acts as a vehicle or business operator.
13) Margin, a net profit is the benefit/surplus of waqf proceeds that must be
distributed to the mauquf ‘alaihi (beneficiary). In this case, Nazhir is entitled
to a maximum of 10% of the surplus waqf by the mandate of Law no. 41 of
2004 concerning waqf. The remaining Z% of the surplus cash waqf managed
is forwarded by Nazhir through mentoring/cultivation to farmer groups,
including scholarships to farmers’ children (13a).
In addition, Y% of the surplus cash waqf managed to be distributed to poor
farmers who do not have access to use (rent) milling machines. Poor farmers
will be given a grant, and the money can be used to rent a milling machine
provided by the Agricultural Saprodi Shop/Cooperative (13b). Apart from that,
Nazhir will set aside a maximum of 50% of the surplus waqf to be reinvested
in the form of financing distribution following the core business run by this
agricultural production shop/cooperative.

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4.3. The Risk Mitigation for Proposed Model
Risk Mitigation can be done via the followings.
1) Feasibility Study
The basic step that needs to be taken as an effort to mitigate risk before the
distribution of financing is to conduct an initial screening in the form of a
feasibility study, in terms of business performance and from the sharia side,
namely the readiness of farmers to use product operations and transactions
that are not violating sharia provisions.
“Nazhir must create a program that substantially becomes a source of economic
capital, a work program that provides direct benefits, Nazhir has a project that
is attractive to collaborate with individual partners, corporations, institutions,
for example, Islamic banking, companies, whether it’s a business partnership or
CSR, to generate income, business generators, creating revenue streams, so that
there are many benefits for the mauquf’ alaihi. Nazhir must also have business
projections, business projections, to provide a clear picture, so that it is feasible to
finance” (WS).
Next, Nazhir needs to appoint internal and external sharia committees
(supervisory boards) who are responsible for business feasibility, checks and
reviews of fundraising procedures and sources of cash waqf funds received,
determining what model and contracts are appropriate to use, ensuring
transactions in accordance with sharia guidelines, as well as conducting
supervision and evaluation from the financial side, and all transactions that
will be carried out to be in line with sharia principles (Azganin et al., 2021).
“How to mitigate the risk so that the waqf principal remains? 1st way out
ensuring that the object being financed is feasible, starting from economies of
scale, production efficiency, marketing guarantees, etc.” (ITS).
2) Use of Islamic Insurance/Kafil (Guarantor)
Another risk mitigation effort that can be done is using sharia insurance/
guarantee. In this case, Nazhir must prioritize the protection of the cash waqf
principal as the primary goal by collaborating with related parties to ensure
the integrity of the cash waqf principal used in financing (Azganin et al., 2021).
This is in line with what is required in BWI regulation no. 1 of 2020 concerning
Guidelines for the Management and Development of Waqf Assets, suggested
by AAOIFI and supported by all respondents.
“How to mitigate the risk so that the waqf principal remains? The 2nd way out is
with insurance, or other guarantee schemes” (ITS).
“Yes, the easiest thing is insurance, right?” (RAL)
“Well, one of the risk mitigation is insurance” (F)
“5/2/11 Using solidarity insurance to safeguard the Waqf assets, whenever
possible” (AAOIFI, 2017).
3) Gradual Reserve Fund
Risk mitigation efforts through reserve funds can be carried out by two actors
in the financing scheme: nazhir and farmers. In this case, Nazhir, each with
PBWI No. 1 year 2020, can reserve funds from cash waqf surplus a maximum
of 40%. This is done as an emergency fund in case of force majeure or price
fluctuations when using Salam contract (Majid, 2021).

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Designing a Waqf-Based Agricultural Financing Model

This has been practiced by the Central Bank of Bahrain, which has issued a
regulation in the form of a reserve fund of 15% of the net price position of
each commodity plus 3% of the estimated gross price (Wahyudi, Rosmanita,
Prasetyo, & Putri, 2015).
“Nazhir is obliged to form a reserve with a certain amount that is accumulated
(saved) gradually, from the surplus obtained so that the minimum recovery rate
can be guaranteed again, in addition to external guarantee schemes such as via
insurance” (ITS).
Meanwhile, concerning farmers, the provision of funds can be made from the
profits obtained from the previous harvest or a specific percentage allowance
for the Salam price (commodity payment) received at the beginning.
“Farmers have reserve funds. Usually, if they collect 100, they will save 20-30 for
emergency funds, while 70 are managed” (AM).
4) Restructuring of Financing and Use of Zakat, Infaq, and Alms Funds
In the event of crop failure and or a decrease in selling prices, causing farmers
to find it difficult to make installment payments on delayed purchases and or
leases on agricultural equipment, they can get access to deferral of payments
(restructuring/rescheduling) without any additional nominal debt. Of course,
per institutional engineering, there will be ongoing assistance for farmers in
this effort to repay the installments.
“If the farmer is late in paying, then they are given convenience in payment in the
form of restructuring (delay)” (AR).
“(The obligation for) financing (received by farmers) still has to be returned,
but the time is extended, either one year or two years. Or, if the next harvest is
successful, it can be returned. But, if you are still experiencing the same thing,
that’s okay. We will reconstruct the funds; basically, the funds will be returned
without any interest” (WNA).
However, if the farmers have not been able to repay their obligations, the last
option that can be sought is to cooperate with the Zakat, infaq, and alms (ZIS)
institutions so that the farmers’ obligations can be covered with these sources
of funds. Then, in the case of using the Salam contract, the delay in delivery can
also be treated as a time delay. Meanwhile, a crop failure can be circumvented
by confirming the exchange with other commodities as approved and needed
by Nazhir. Lastly, if there is no other option, the farmers can return the Salam
price that has been paid (AAOIFI, 2017; Majid, 2021).
5/8 In case all or part of al-Muslam Fihi is not available to the on the due date, the
buyer shall have the following options:
5/8/1 To wait until al-Muslam Fihi is available.
5/8/2 To cancel the contract and recover the paid capital. It is also permissible for
the parties to agree to replacement of al-Muslam Fihi by other goods. (AAOIFI,
2017).

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V. CONCLUSION AND RECOMMENDATION
5.1. Conclusion
The contracts used in the proposed model combine various commercial contracts,
namely mudharaba, salam and ijara in one scheme using cash waqf fund. In terms
of implementing a model that accommodates the characteristics of agricultural
financing needed by farmers, an institutional engineering mechanism is required
by establishing a vehicle represented by nazhir, off-takers/standby buyers, and
farmer groups who act as risk control efforts. To maintain the integrity of the
principal of cash waqf, risk mitigation that can be carried out is by conducting
a comprehensive feasibility study, using Islamic insurance/guarantor, gradual
provisioning of reserve funds, and implementing interest-free financing
restructuring involving the use of zakat, infaq, and alms funds. It is hoped that the
design of the proposed model will help the Government (Ministry of Agriculture)
to encourage and increase inclusive agricultural financing (rice crops), enhance
farmers’ welfare, and contribute to food security. In addition, this proposed
model is expected to encourage and spur innovation and deepen Islamic financial
products that integrate commercial and social aspects by waqf institutions and
other Islamic financial institutions at the micro level for the agricultural sector in
particular and other real sectors.
5.2. Implication and Policy Recommendations
1) Government
The Ministry of Agriculture can collaborate with National Planning and
Development Agency (BAPPENAS) for national development by initiating
cash waqf fund as an alternative to agricultural financing (especially rice
crops). In addition, the government can also be the initiator to synergize with
relevant stakeholders to generate an Islamic agricultural insurance scheme
that covers crop failure.
2) Ministry of Religious Affairs (MRA) and Indonesian Waqf Board (BWI)
As the regulator, the MRA can synergize with BWI in issuing regulations
regarding cash waqf financing in the agricultural sector. In particular, BWI
is expected to continue encouraging innovation and empowering productive
waqf, especially in the agricultural sector, as a vital sector. In addition, nazhir
training and mentoring efforts, especially those that play a role in financing
and agricultural empowerment can also be initiated specifically through
collaboration with the Productive Waqf Forum, micro entrepreneurs and
related associations in the agricultural sector, Baitul Maal wat Tamwil (BMT),
and related stakeholders.
3) Nazhir
Nazhir can design a ‘collaborative project’ to finance micro and small farmers
who are vulnerable and have limited access to sharia-compliant financing by
adopting this proposed model. With it, nazhir’s capacity building in managing
cash waqf in the real sector also needs attention. Nazhir, who has overgrown
and has business units in one business ecosystem, can be an example for a
new nazhir who is still developing. It is because the model implementation is
expected to start from upstream to downstream.

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4) Farmer’s Group and Associations
Farmers’ associations must collaborate with waqf institutions (mainly) and
ZIS to jointly design inclusive empowerment farmework for small and poor
farmers. In addition, farmer associations in existing agricultural institutions
must also arrange for an appropriate party to act as an off-taker/standby buyer.
5) Islamic Micro Finance Institutions (IMFI)
BMTs in Indonesia, which also act as nazhir of cash waqf, with suitable
coverage and characteristics for micro and small business financing, can adopt
this model to be applied as an inclusive financing product that integrates
Islamic commercial and social financial products.
5.3. Research Limitations
Future research can integrate efforts to finance and empower agriculture by using
cash and asset waqf (land/paddy fields) in one model. In addition, to test the
proposed model so that it is much more applicable in the area, further research is
needed especially on the technical implementation of the model by undertaking a
simulation of the designed financing scheme as well as a comparison of financing
between the proposed model and existing agricultural financing schemes. Based
on this further research, it is highly recommended to directly involve expert
respondents who come from representatives of the Ministry of Agriculture in the
financing and or procurement of agricultural facilities and infrastructure.
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