Tapping into muzara’a, musaqah and mugharasah potentials

ALTHOUGH Islamic banking in Malaysia has been prospered and dynamically moulded, not much effort has been directed to traverse the linkages between the offered Islamic agricultural financing and the objectives of Islamic banks.

Muzara'a, musaqah and mugharasah contracts are acknowledged notable in the industry but their utilisations in Malaysia, somewhat, are confined sourced from weakened theoretical and practical supports.

These questions are then answered. Q#1 – What are meant by the terms muzara'a, musaqah and mugharasah? Q#2 – Are there any issues and measures used to address their practicality?

Of course, the learning of these contracts needs pluck and density to ensure the grasp can meet its root to expose the reality of the said contracts for adaptation and employment, which is of essential if certain measures are welcomed.

Muzara'a is ‘union in agriculture' embracing the landowner and the farmer, typically a person who has the know-how skills in the cultivation of crops. The landowner surrenders the land to a farmer and later the sharing of the fruited efforts through monetary yield is considered. The rate of the sharing is based on their deal and ultimate consensus.

Muzara'a has at least five features. First, the seeds used are supplied by the landowner for cultivation purposes. Second, the land employed should be arable, which is likely to be cultivated. Third, the land should be accessible and available for direct use of the farmer concerned. Fourth, the period of the muzara'a is known and agreed by parties concerned. Fifth, the clarity of the sharing is affirmed in the agreement (termed as ijab and qabul) – be it oral or written.

In practice, however, muzara'a is found in mudharabah which is defined as the profit-sharing as in majority can be found in investment accounts in Malaysia but somewhat minimal when it comes to agricultural financing. In this arrangement, however, the landowner provides capital in the form of land and seed, whilst the farmer is learnt to put sweats and edifications in ensuring the arrival of fruitful harvests.

Musaqah is a kind of partnership that depends on one party resenting planted trees that produce usable products to another party work on their irrigation until the fruit is ripe in consideration for a common specified share in the fruit.

In general, musaqah comes with these features. First, it is a contract of irrigation in which one party is known as the plant owner and another party in which the latter will perform maintenance tasks, the caring duties and all necessary works related. Second, the yields generated will be shared among the plant owner and the other party. Third, the plant owner surrenders the plant to the gardener in which the latter will ensure the preservation until the crop yields monetary benefits to parties concerned. Fourth, the profit is shared based on a percentile. Both parties earn nothing when the crop produces zero. The plant owner has learnt to borne the maintenance cost whilst the fruitless efforts are the price borne by the gardener.

Fifth, the crop yields and the scope of work done are defined as essential pillars beyond the traditional ones that include the transacting parties, sighah (ijab and qabul) and the crops.

Like muzara'a, musaqah is also running based on mudharabah which explains its potentiality to the transacting parties, in which a plant owner surrenders his crop to be managed by others who will perform continued pertinacity.

Mugharasah is a type of partnership in which a landowner presents a treeless piece of land to a planter for the latter to plant trees on it in return for a common defined share of the trees, fruits and land. It is also known as munasabah.

At least five features are explained. First, the land used for mugharasah is free from any effects of other agreement by the landowner. The clarity is established and known to the transacting parties. Second, the planter is of utmost importance to cultivate long-lasting trees than that of fruit plants, cereals or legumes. Third, the planted trees have similar or close fructification period or duration. Fourth, the landowner defines part of the land used for the cultivation is surrendered to the planter as termed as a wage for the services rendered.

Fifth, there exists a different ruling in running mugharasah from one sect to another. As for the Shafiites, the arrangement of the land associated with the mugharasah is not in tandem with musaqah leads to the defection, whilst the Hanafites, the Hanbalites and the Malikites define their permissibility subject to certain rulings.

Though these contracts have a profound implication to jack up the future good public image of Islamic banking to another gear of explained wisdom – some issues should be learnt before a departure can take place.

Strengthening agricultural culture is needed to tap into the contracts' potential, which in turn can contribute to a new segmentation along with diversified customer base to include the agricultural sector. A key test for the majority of the landowners is access to affordable financing to secure success. Indeed, Islamic banks shall develop a measure of financing in ensuring muzara'a, musaqah and mugharasah can find their way out. Research is needed here.

There is a conception in that the portfolio of Islamic banking is restricted to commercial purposes at the expense of agricultural sectors. In response to this anxiety, the managers of Islamic banks are anticipated to take off from the traditional model of the portfolio by adding the agricultural sector as a new list of dominant new customer base and profitability.

The landowner might have a balanced idea to turn his land into a successful field of fruitful crops. However, if the right partners are fumbling from the Islamic banks' database – it is unlikely that the effort planned will get off the ground. The absence of support to engage in agricultural sector partly by millennials sourced from biased mindset can produce a paradox and strengthened from the lack of technical supports and concepts for agricultural projects. Education is the key here.

All in, the agricultural sector is relatively relevant today owing to its weight in securing the food supply is of superior to its threshold standard of existence to many. Besides, the composed muzara'a, musaqah and mugharasah into an Islamic banking system can help improve one's worship rites and financial transaction.

Only time will tell whether we arrived at the right decision or not linked to this sentiment, where tasawwur and maqasid al-Shariah are brought into play, at least.

*The author is an Associate Professor at the Labuan Faculty of International Finance, Universiti Malaysia Sabah, Labuan International Campus. He has a PhD from the International Islamic University Malaysia (IIUM) in Islamic Banking and Finance (PG310163). He can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it.

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