Diploma in Islamic Finance Course 2017

The following list of courses were prepared from the relevant institutions website. Please contact the institutions for further detail. islamic finance courses-1

Weeky Industry updates

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Maybank Islamic named Asia-Pacific’s Islamic Bank of the Year 2017 more

UK ’Shariah-compliant’ airline Firnas targeting $1.29 mln on crowdfunder Eureeca more

Finance authority launches Islamic finance road map in Indonesia more

IFSB “Another Year of Slowdown in Global Islamic Finance”  more

Islamic banking will benefit Kenyans of all faith  Read more


Islamic Credit Cards – An Introduction


  • Silwan Qurabn (MIFM Graduate Student, Effat University, KSA)
  • Mona Alansari (MIFM Graduate Student, Effat University, KSA)



1) A Credit card is a revolving credit facility within the credit limit and credit period is determined by the issuer of the card. It is also a mean of payment.

2) The holder of the credit card is able to pay for purchases of goods and services and to withdraw cash, within the approve credit limit determined by the card issuer bank.

At the very start of 20th century people used to pay cash for all the goods and services they buy, In 1920, Oil companies and department stores started offering courtesy cards which were metal charge plates, which holder can use to make purchase but such cards were mainly accepted only by the merchant who has issued them, such card were more like the modern days store cards.

There is famous story of McNamara’s dinner at Major’s Cabin Grill New York restaurant, next to the Empire State building, when McNamara finished his Dinner with his friends and reached into his pocket to pay money for meal and shocked when discovered that he forgot his wallet home, immediately called his wife to bring wallet and he paid bill with embarrassment, but from that Dinner he came up with new idea of credit cards which can be used at multiple locations. Mc Namara and his lunch friends Bloomingdale and Sneider all three pooled money together and created a new credit card company in 50’s named it as Diners Club.

At the very beginning Diners club credit card were given to 200 people mainly the friends, such card were initially accepted only on 14 new York restaurants and such cards were not made up of plastic instead of paper and accepted merchants were printed on the back of paper, just in second year profit was more than $60,000.

Diner’s club card first started as mass acceptance, which enabled the cardholder to spend more than no cardholders, and diners club charged 7% fee on each transaction, which also required holder to payback all amount at the end of each month. Just after one year it has 42,000 members and by 1953 it was the first internationally accepted charge card company, within just 40 years its position was challenged by the other major competing companies such as American Express which first issued the plastic card.

Among the other the most innovative one was bankAmericard started from California, and spread, it was most accepted in California, in later years Interbank card association emerged to smooth the transaction between merchant, bank and cardholder, BankAmericard eventually became Visa, while the inter bank card association letter became MasterCard. Both card got acceptance almost everywhere and later on issuer’s starts adding perks to attract more customers, the entry of discover card further enhanced competition. Up till late 1960 there were no concrete regulation in credit card industry although millions of people were now using this facility, and because of lack of regulation different issuers were charging much different interest rate and there were number of frauds in practices, the first major legal and regulation process started with “The Truth in lending Act and consumer credit protection act, with such acts standardize method of calculating interest introduced. More regulation were added for the consumer protection through the consumer credit protection act. After the 2008 financial crisis, more regulation were added in “the truth in lending act” through the card act of 2009.


How Does Credit Cards Work In Conventional Banking?

Conventional credit card system evolved after the Diners Club inc, and American Express. Under the conventional credit card banking system, merchants account is credited by the bank and money is immediately paid to the merchant, while charges are assembled to the credit card holder at the end of billing period, which the credit card holder pays to bank either entirely or in installment with the interest rate also called as Carrying charges.

Credit card is a financial product which is issued by your bank or other financial institution which allows you to make purchase and take cash advance. The main difference between the charge card and credit card is that charge card required you to make full balance payment at the end of month, which credit card allows you to carry balance indefinitely as long as you can make minimum payment at the end of each month.

Credit cards let you to spend money on credit, you can spend up to a limit which is preset when the card is issued, Once you use the credit card, you are required to make a minimum payment every month before the due date and if you are unable and failed to make that minimum payment, then the interest charges will be applied usually charges are applied to backdated when the goods or services is purchased. The best way to avoid any extra charges and using card wisely is to make sure that you are able to make monthly payment, and we can avoid any fiancé charges if we can make full payment back before the 30 days or end of month.

In normal credit card transaction there are three parties involve, 1) card issuer, 2) payment network 3) merchant. Whereas card issuer is your bank, payment network are normally widely accepted, Visa or MasterCard , normally logo are marked on our credit cards, and merchant is the place from where we make purchase, normally merchant has specially bank called acquiring bank which handle the transactions.

For example you finished your dinner in a bank, and swipe your card in a little machine to pay your bill, that machine transfer your information to merchant (Restaurant’s bank), merchant bank use the Visa or Mastercard payment network, receive authorization from the card issuer bank, once card issuer bank accept the transaction it transfer funds to network (Visa, MasterCard) which then sends funds to your restaurant’s or merchant bank’s account. Later on you pay the balance wither as whole or as in monthly installments.


How Does Credit Cards Are Structured In Islamic Baking?

In terms of functions and definition, the Islamic Credit Cards are same like the conventional credit cards, the only thing that is avoided and prohibited is Usury or interest rate, and Islamic credit cards are compliant with Shariah and Islamic principle especially regarding the payment of credit cards.

According to Islamic laws, hadiths and Quran, it is prohibited to pay interest on the money which is withdrawn in advance, like this all the additional interest charges of delaying payment is also prohibited, but if credit card are only served as charge card where you pay the principle amount plus the services charges then its allowed and permitted.

Tawarruq, Murabaha, Bay al Inah and Ujrah are widely used in recent Islamic banking, whereas Bal Al Inah means selling goods with immediate purchase, and Ujrah means service charges or charges against the rendering service.

Bay Al Inah involves selling and buy back transaction of assets by the seller, where seller sales asset to buyer at cash and then buy back on deferred payment basis at higher price,  so Bay al Inah is a two parties contract where a person sells commodity on credit at specific price, and then buy back at lesser price for cash, and the difference between that specified price and lesser price is called profit, modern Islamic banking refer that profit as the credit limits.

Islamic credit card are used and allowed only to buy halal goods and services, Islamic credit card cannot be used to purchase anything that is declared haram by the Shariah. The main different between the Islamic credit cards and conventional credit cards are Riba (interest) and Gharar (Overcharging) both are prohibited in Islamic.

Another famous financial instrument concept used in Islamic credit cards is Tawarruq, where the buyer buys a commodity from seller on deferred payment basis, and the sells same commodity to another party at cash or on the spot payment basis. Basically in this way initially buyer is borrowing cash from the bank via initially purchase, like this way in Islamic credit card use customer buy goods or services from bank on cost plus profit basis and then customer resale it on cash basis, so Tawarruq is basically transfer of ownership process and allowed by the shariah.

Ujrah is another concept used in Islamic credit, it’s the fee that Islamic banks charged against the services they render to its customers, so Ujrah is service fee.


Islamic Credit Cards Used In KSA

In Saudi Arabia, AlAhli Islamic Credit Card use the Taqarruq as a financial Instrument for making credit transaction, according to this concept as mentioned above customer buys the good or service from Islamic bank at a marked up price to be paid latter then quickly sales the goods for cash, but it is also necessary tangible assets should underlie all the transaction, for example buying a precious metal from bank at $1000 and then selling it to market at $900 cash.

SABB another bank in Saudi Arabia uses Tawarruq (Mal) and Murabah (SAHM) financial instrument for credit lending, where you can get credit up to SAR 1,500,000 with 5 years of repayment period, but the card holder mush be above 21 years and should have minimum salary above SAR 3000.

According to Tawarruq contact you buy a metal from SABB bank at higher price (bank keeps its profit) on deferred payment, and sale it into market for cash at lower price.

According to Murabaha concept SABB bank purchase Shariah compliant share from local stock market and sale you at known fix profit, after buying share from SABB bank you have the option either to invest share in halal investment portfolio or Sale share to generate cash.

Saudi Investment bank is another Islamic bank which issue Silver, Gold and platinum credit cards to its customers, SAIB and SAMBA credit card also works on Tawarruq principle basis as we discuss earlier.

AL Rajhi credit card works on Murahaha finance basis and offers customer flexibility where you buy now and pay later.  Here bank purchase goods such as car, furniture, electronics or any other goods on behalf of customer and then sell it to customer at a profit, and intermediary retain the ownership of the goods until the loan is fully paid.


Case Study – An Islamic Credit Of A Bank

United Arab Bank UAE

United Arab Bank in UAE functions on the basis of personal Murabaha Finance solutions which is a contract between the bank and its client, where bank purchase the goods and sell them to client at cost plus profit on deferred payment basis, and client is required to make payment to bank on installment basis, in this way bank can avoid the charging interest rate forbidden in Islam.

An example of Murabah finance is owning a car, for example you have a favorite car and you want to buy it but you don’t have money to pay it off at once, under United Arab bank Vehicle murabaha scheme bank will purchase the car for you can sell it to you at purchase price plus profit margin, and you will pay back money in installment, the benefit of this credit is that you know the profit and total amount which you have to pay to the bank.


MayBank Malaysia

Maybank is based in Malaysia and their credit card products are variety of Visa and MasterCards under the name of MAybankIkhwan.

The concept if MayBank Islamic credit card is based on the Bay Al Inah and Ujrah,  Bay al inah is buy back contract , where seller sale goods on credit at higher price and buy back on cash bases at lower price, different between two prices is profit and it’s also the credit limit.

But the problem with such method is that, buying and selling is pre-specified with no risk, which is haram in Islam, plus most of the cases this is only on the paper buy and sale and no actual physical asset is moved.

Because of the above mentioned problems bank also uses the Ujrah as financial instrument, which is basically charges for rendering services.

Like the conventional bank MayBank also has grace period of 20 days. And Maybank Islamic card requires 5% of the outstanding loan as the minimum payment. In case of failure to make minimum payment 1% of the outstanding loan is charges as a fee and then used to help needy people to perform Umrah trip.


Tsosie, Claire. “The History Of The Credit Card – Nerdwallet“. NerdWallet. N.p., 2017. Web. 26 Apr. 2017.

“The Incredible True Story Of The Very First Credit Card”. ThoughtCo. N.p., 2017. Web. 26 Apr. 2017.

ZAID, FATIMAH. “The Difference Between Conventional And Islamic Credit Card”. Academia.edu. N.p., 2017. Web. 1 May 2017.

Erol, C., Kaynak, E. and Radi, E.B., 1990. Conventional and Islamic banks: patronage behaviour of Jordanian customers. International Journal of Bank Marketing8(4), pp.25-35.

Jamshidi, D. and Hussin, N., 2012. A conceptual framework for adoption of Islamic Credit Card in Malaysia. Kuwait Chapter of the Arabian Journal of Business and Management Review2(3), p.102.














Dissertation Topics in Islamic Finance and Economics (Updated)

These are dissertation or thesis proposal. Researcher are free to develop based on these themes. These proposal includes the banking, producti development, risk management, performance, economics, corporate governance, marketing, information technology, strategic management, human resource management, micro financing, Sharia board, and contemporary thoughts.

The author expects contribution from the researchers and students for preparation of dissertation or thesis topic selection( These just sample can be modified as per user requirements)

Islamic banking

Compare the customer deposits between Islamic and conventional bank

The sources of uses of funds in Islamic banks – country or region specific comparative analysis

Islamic banking experiences : A country comparative analysis or study

Islamic Banking in the ……. (country): Opportunities and threats

Islamic Banking Theories and Practices : country analysis

Islamic banking windows/ system into Conventional Banking Systems

Islamic Finance: As an alternative social responsible and ethical investing.

Islamic Financial Institutions and Products

Legal and ethical issues in Islamic banking

Transferring from conventional to Islamic banking

Current account contracts in Islamic banking : A comparative study between Islamic contracts of Amanah, Qard Hasan, Wadiah

Dominance of sales and lease based transactions in assets of Islamic banks  : comparative study.


Islamic Financial Instruments

Islamic Financial Instruments development

The role of Sharia’a boards in Islamic financial instrument development

Islamic banking product to help the international trade

Murabaha or Ijara : The best financing

Mudaraba or Musharaka : The best equity financing

Murabaha Financing vs. Conventional leasing: cash flow and risk analysis


Cooperation with….

Study on How do Islamic bank cooperate with conventional bank in international trade

Study on How do Islamic bank cooperate with central banks in conventional environment

Structure and functions

The function of commercial banking: Compare the Islamic and conventional banks

Structure of Islamic bank : compare with the conventional bank

Internalization of Islamic banks

Customer relationship between the conventional and Islamic banks

Profit and Loss sharing mechanism of Islamic Bank



Interbank transaction of Islamic bank – current system and proposals

Interbank borrowing of Islamic banks

Tawarruq as a tool of interbank borrowing

Interbank bench mark for Islamic banks – proposals

Developing Islamic financial instruments to ease the interbank transaction


Mergers and Acquisition

Cross border mergers and acquisition of Islamic banks

Do mergers or acquisition will affect the efficiency of Islamic banks

Islamic banks entry – from a country perspective


Bank’s failure

Analysis of Islamic banking failures

Why Islamic banks does are more resistance to failure

Corporate governance, accounting and Risk management


Risk management in Islamic banks

Risk management practices comparative analysis for conventional and Islamic banks

Credit risk management of Islamic banks/Islamic financial institutions (IFI)

Liquidity risk management of Islamic banks (IFI)

Asset and Liability management of Islamic banks/IFI

Commercial risk management of Islamic banks/IFI

Sharia compliant risk management of Islamic banks/IFI

Performance and credit risk management of Islamic banks

Performance and ALM of Islamic banks

Profitability and risk management of Islamic banks and IFI

Analysis of derivatives instruments by Islamic banks


Islamic derivatives markets

Hedging techniques used by Islamic banks (country or regional specific)

Effectiveness of hedging techniques used by Islamic banks

Is profit rate swap and interest rate swap same in terms of payoff?

Differentiating conventional forward or future market with Islamic Salam based products

Options: developing Islamic options products

Developing Islamic hedging products based on Juala or bay al arbun contracts

Financial engineering in Islamic finance industry: Country comparison.

Financial engineering in Islamic finance for way forward ..





Corporate social responsibility

Islamic bank and corporate social responsibility

Islamic banking and poverty alleviation

Corporate Social Responsibility of Islamic Banks

CSR and profitability of Islamic banks

How corporate governance is different from conventional banking and Islamic banking




Performance of Islamic bank and conventional bank in a selected country

Measuring the productivity of Islamic banking

Islamic Banks performance in industrial lending

Measuring the performance of Islamic Banks

Performance of Islamic banks during the financial crises

Comparative analysis of performance of Islamic banks and conventional banks during the financial crises/ post or during.


Customer relationship, marketing and strategy

Investigating the Customer Relationship Management in Islamic banks – (case can be taken from any bank or country perspective)

Investigating the customer loyalty in Islamic banks

Identifying the competitive strategy of Islamic banks: a comparison with conventional banks

Developing a model for customer loyalty in Islamic banks

Brand management of Islamic Financial institutions

Customer loyalty for Islamic banks

Consumer behavior for Islamic credit cards

Customer perception of Islamic banking windows in Conventional Banks

Investigating the CRM activities in Islamic Banks

Switching behavior of Conventional banks to Islamic Banks – An international perspective

Ethical marketing for Islamic banking


Credit crises

Islamic mortgage system as a solution for current credit crises

The effect of credit crises in Islamic banking

Measuring the effect of credit crises in Islamic Banking

Islamic banks less affected by credit crises

History, development and challenges

Development or establishment of issues of Islamic banking – in particular country or region

Islamic Banking in (country) – Development, perspectives and evolution

Challenges faced by the Islamic banks

Challenge: Arabic terminology – Merits and demerits

Knowledge management and Islamic finance education

Islamic banking and knowledge management

Knowledge Management in Islamic banks

Skill gap and recruitment gap for Islamic financial institution

Employer preference of Online versus traditional degrees in Islamic qualification

How effective Islamic finance education to cater the growing demand.


Sharia’a board

Sharia’a Boards in Islamic banks

Influence of religious boards or Sharia’a councils in Islamic banks

How effective Sharia audits

Fatwa unification for Islamic banks

Standardization or harmonization of Fatwas in Islamic banking/IFI industry.



Islamic Economics

Fiscal policy Islamic economy

Islamic banking and (country’s) growth

Islamic finance industry and (Country’s) growth

Inflation in Islamic economy

How Islamic economy can reduce the inflation

Contribution of Islamic economy in infrastructure development of developing country

How the choices made by human race in Islamic economic system with scare resources

Is resource scare in Islamic Economy?

Opportunity cost from Islamic Economics perspectives

Reducing the effects of climate change

Development of SME in Islamic based economies

Islamic economy and Adams Smith a comparative study

Labor migration in Islamic economy

Unemployment and Islamic economic system

How Islamic economic system can reduce the unemployment

Solution for unemployment under the Islamic economy

Poverty alleviation in Islamic economy

Islamic economic model as solution for global economic crises

International trade under Islamic economic model

Foreign exchange depreciation and appreciation in Islamic economic model

Micro finance in Islamic economy

How Market equilibrium decided in Islamic economy

Comparative analysis of socioeconomic development of Islamic economy and socialist economy

Comparative analysis of socioeconomic development of Islamic economy and capitalistic economy

How the Islamic economic models contribute to the productivity increase

Contribution of Islamic economy for financial stability and macroeconomic gains

Capital mobility in Islamic economic system

Islamic finance system and economic growth

Islamic finance system and economic growth

Islamic banks in poverty alleviation

Economical functions of Islamic Financial Market

How Islamic banks can help in Economic Development



Islamic Capital Market

How does an Islamic financial market works

Investment: An Islamic perspective

Development or Growth of Islamic capital market

The products in Islamic capital market

Filtering the stocks for Islamic investments


Valuing the Sukuk

Developing Hybrid Sukuk to cater various needs of Islamic banks or governments

Green Sukuk as corporate social responsibility.

Comparative analysis of conventional bonds interest rate with profit rates of Sukuk.

Risk management practices for Sukuk

Sharia compliant issues for Sukuk structuring

Development Sukuk market and country’s economic indicators

Compare Value at Risk between Sukuk and conventional bonds


Micro Financing

Micro Financing in Islamic finance industry: For country developments.

Islamic micro financing techniques

Structuring new products for Islamic micro financing

Micro finance increases access to credit for poor in developing countries

Social finance: gives access to charities and social enterprises access to finance.

Islamic entrepreneurial finance

Islamic social finance

Islamic Insurance

How ethical Takaful compared to conventional insurance

Comparative analysis of Takaful industry with conventional insurance (country or region specific)

Performance of Takaful industry

Customer perception of Takaful system

Developing Takaful model

Making Sense of Onion Economics in India: Can Islamic Finance Help? – by Mohammed Obaidullah

I was motivated to write this piece by the story of a poor farmer in India. The story of this 48-year old farmer Devidas Parvane from the Rasai village of Pune in Maharashtra state in India as reported in the mainstream media captures a classic unresolved problem of agricultural finance in India. The farmer brought 952 kg or about 1 ton of his onion produce to the wholesale market in Pune city. According to his estimates, this required a financial investment of Rs4000 (less than USD60) plus of course, his hard labor. What was the return after deducting all relevant expenses?[1] The farmer ended up receiving just Rs1..(Rupees one) from the entire lot. Disappointed and in tears, he asked the media to carry his message forward – if the government fails to remedy the situation, the only recourse for him would be to commit suicide.[2]

onionOnions are considered an indispensable ingredient of most Indian cooking and a major cash-crop for the Indian farmer.[3] The onion market is characterized by extreme fluctuations in supply due to dependence of onion production on uncertain weather conditions, leading to extreme volatilities in the onion prices. The value chain of the onion farming business constitutes the farmer who sells its produce at the whole-sale market. The whole-sale intermediary, in turn, sells to the retail sellers who then sells to the final customer. Among all the parties, the farmer and the final customer are believed to have the least bargaining power, and consequently, suffer the most due to price volatility.

The final consumer suffers during extreme price increases, but seeks to minimize the impact by adjusting the quantity consumed. However, it is hard to cut the consumption of an essential ingredient of cooking and therefore, demand for onions is relatively inelastic.

The farmer in contrast, faces a bleaker scenario. Theoretically speaking, the fortunes of the farmer, the wholesaler and the retailer are tied together. During price increases due to poor supply conditions all should gain, since demand is relatively inelastic. However, it appears that gains to the wholesaler and the retailer are disproportionately higher as compared to the farmer, since the former engage in hoarding and speculation, further pushing up the prices. Hoarding at the farmer’s end is generally ruled out without access to warehousing and storing facilities. Similarly, during price declines accompanying excess supply the farmer is unable to stock the produce due to lack of cold-storage facilities and is forced to offload the same to the wholesaler at abnormally low prices. While excess supply is not easily absorbed by inelastic demand, the fall in prices is entirely absorbed in the prices paid to the farmers pushing down their margins to below normal or even negative levels. The whole-saler and the retailer, in contrast, are able to maintain their margins and their respective sale prices. In brief, the farmer bears the down-side risk during price decline without benefiting from the upside return potential during a price increase. In contrast, the intermediaries – wholesale and retail – benefit from the upside, often contributing to the northward movement of prices through hoarding. At the same time they are able to shift the down-side risk to the farmer and hold on to their margins.

The above contention is evidenced by some investigative exercises undertaken by Indian journalists at the ground level. In recent times, the most pronounced decline in supply of onions leading to a sharp increase in their prices occurred in November 2010 when an unseasonal and excessive rainfall in onion-producing regions delayed the arrival of onions in markets, raising the price of onion from Rs35 (USD0.52) to Rs88 (USD1.30) per kg in just one week. The government as a response, took several measures, including banning of onion exports, lowering import taxes and getting in shipments of onions from neighboring countries, leading to prices retreating to Rs50 (USD0.85) levels. The sharp spike in the prices was attributed to errant rainfall, hoarding, official incompetence and price-ramping by traders. It was revealed that wholesalers, retailers and speculative traders in New Delhi charged a markup of over 135 percent, taking in profits of over Rs 1 million (US$15,000) a day.[4]

The situation in 2016 seems to be exactly opposite. A recent media report that traces the movement of onion prices along the entire value-chain of onion business – from the fields of farmers to the plates of consumers, has some interesting findings. In India three states, Maharashtra, Rajasthan and Madhya Pradesh top the list for production of onions. In Maharashtra the Nasik District is known for its onion production that is sold through 40 wholesale markets. Even when the price is perceived to be not-remunerative-enough, the farmers are forced to offload their produce in the markets as they are unable to stock the same due to absence of cold-storage facilities.

Who benefits from the economics of onion prices? The pricing of 1 kg of onion across the distribution channel as it moves from the fields of Maharashtra to plates of consumers in Delhi makes interesting analysis.[5]

  • Farmer sells at wholesale market in Nasik @ Rs 2.00
  • Nasik wholesale sells @ Rs 7.00 (margin of 250 percent)
  • Transportation cost from Nasik to Delhi: Rs 2.00 per kg
  • Landed cost of 1 kg onion at wholesale market in Delhi: Rs 9.00
  • Sale Price of 1 kg onion at wholesale market in Delhi to Retailers: Rs 16.00 (margin of 75-80 percent)
  • Sale Price of 1 kg onion at Retail to final customers in Delhi: Rs 20.00 (margin of 25 percent includes transportation plus profits)

It is clear from the above analysis that the farmer may indeed receive as low as ten percent of the price that the final consumer pays. The bulk of the price goes to intermediaries in various forms. Such irrational pricing that makes farming a losing proposition poses grave danger for food security in India as farmers are driven out of this profession. What has been the policy response so far to curb this menace?

Policy Response in India[6]

The policy response in India so far, has been the establishment of the Agricultural Produce Market Committees (APMC). The stated objective of APMCs is to ensure that farmers are not exploited by intermediaries (e.g. traditional money lenders in the villages) who compel farmers to sell their produce directly for an extremely low price. APMCs will ensure that all food produce should first be brought to a market yard and then sold through auction.

APMCs involve dividing the region/ state geographically and setting up of markets (mandis) at different locations. Governments in states, Maharashtra, Karnataka, Tamilnadu, Andhra Pradesh etc. have enacted legislation for formation of APMCs or Marketing Boards and for provision of operational rules. Most APMCs have a market place where traders and other marketing agents are provided stalls and shops to purchase agriculture produce from farmers. Farmers can sell their produce to agents or traders under the supervision of the APMC. The key features of APMCs are as follows:

  1. Farmers are required to sell their produce via auction at the mandi in their region as auctions are the best available methods for price discovery.
  2. Traders require a license to operate within a mandi as a measure of due diligence and transparency.
  3. Wholesale and retail traders (e.g. shopping mall owners) and food processing companies cannot buy produce directly from a farmer. This is to ensure that vulnerable farmers are not exploited by the traders.

In practice however, many ills remain in the system.

The auction system has been found to be vulnerable to manipulation by the traders and their agents. The licensee traders and commission agents have formed informal cartels at the mandis. There is either no auction, or even if auction is held, the cartel deliberately bids too low.

It is also believed that the exclusion of direct buyers (e.g. super markets) has made the system only less competitive. There seems to be a case in favor of permitting the direct buyers as competition among buyers should lead to better price realization by the farmers. This is the recommendation of the new model APMC Act provided by the government of India.

Due their strong bargaining position at the APMC, some traders and middlemen engage in many unhealthy practices:

  • Traders and middlemen engage in hoarding by making major investments in warehouses and storage facilities and artificially manipulate the prices.
  • Traders also need to make huge investment while seeking license to operate in the mandis; the licensing system brings all the accompanying evils.
  • Often traders delay payment to farmers for weeks or months even after receiving the produce.
  • If payment is made at the time of sale, then the trader at times, arbitrarily deducts some amount, on the excuse that he has not received payments from the other parties.
  • To avoid taxes, some traders do not give sale slips to farmers. As a result, it is difficult for the farmer to prove his income to get loans from banks.
  • Middlemen receive double commission (both from seller and buyer), thus making consumers pay for this spread.
  • Price discovery is more efficient for cereal, pulses and oilseeds, where the government announces Minimum support prices (MSP) in advance. This is not the case with most perishables fruits and vegetables including onions making farmers completely dependent on intermediaries for price discovery.
  • During peak production of seasonal crops, prices drop so drastically, the farmers can’t even cover the cash expenses of transportation to markets, leave alone the cost of production, as the example cited earlier highlights.

The New Model Act

The new model APMC Act has many strengths as it seeks to address the major problems of the old Act. The key provisions are as under:

  • Permission to farmer to directly sell produce to whomever he wants, e.g. processors, exporters, graders, packers, without bringing the same to the mandi
  • Permission to private market yards, Direct Purchase Centers, farmers’ market for doing trade in agriculture produce thus, destroying the monopoly of mandis.
  • Public Private Partnership in the management and development of agricultural markets in the country for post-harvest handling, cold storage, pre-cooling facilities, pack houses etc.
  • Regulation and promotion of contract-farming arrangements in the country; creation of dispute resolution mechanism for contract farming.
  • Prohibition of commission agents in any transaction
  • Setting up of State Agricultural Produce Marketing Standards Bureau for grading, standardization and quality certification of agricultural produce
  • Increased responsibilities of APMC committee that include: ensuring complete transparency in pricing system and transactions taking place in market area; and payment for agricultural produce sold by farmers on the same day
  • Publication of data on arrivals and rates of agricultural produce brought into the market area for sale.
  • Promotion of public private partnership in management of mandis

Some other suggestions to improve matters include introduction of electronic auction platform; open membership and abolition of license system, and of taxes etc.

Case for Commodity Futures, Forwards

The concern for price discovery and insulating the poor farmers against sharp price falls have led to the search for alternatives including the establishment of futures exchanges. Though the key benefit of an organized futures exchange is believed to price discovery, available evidence for India is to the contrary. In an investigation into the futures markets in agricultural commodities in India, the statistical analysis of data on price discovery in a sample of four agricultural commodities traded in futures exchanges have indicated that price discovery does not occur in agricultural commodity futures market. The results showed that the futures and spot markets are not integrated. The exchange-specific problems like thin volume and low market depth, infrequent trading, lack of effective participation of trading members, non-awareness of futures market among farmers, no well-developed spot market in the vicinity of futures market, poor physical delivery, absence of a well-developed grading and standardization system and market imperfections have been found as the major deficiencies retarding the growth of an organized Futures Exchange.[7]

Another alternative is contract farming which is a forward agreement between farmers and buyers under which the buyer agrees to buy produce from farmer at a predetermined price; usually provides inputs (seeds, fertilizers, and pesticides), technology and production practices so that final produce meets his desired quality. The farmer agrees to grow and supply the produce to the buyer at predetermined quality, quantity and prices. Contract farming is prevalent in a few states including Andhra Pradesh, Himachal Pradesh, Madhya Pradesh, and Maharashtra while states like West Bengal have opposed it on the ground that the same may be exploitative.

Does Islamic Finance Provide a Solution?

Similar to contract farming, but more demanding in terms of transparency and definitiveness is the Islamic forward called Salam sale. In contrast to a conventional forward or contract farming, the entire sale price of the produce sold in advance is paid to the farmer by the buyer. The price per unit, quality specifications and all terms of sale are clearly determined in advance. The farmer gets the price in advance (and uses the same to finance pre-cultivation activities) and delivers the sold commodity after the harvest, and is thus insulated from price manipulations that may result in a free-fall subsequent to a bumper harvest.

Further in the true spirit of an Islamic economy, which is a sharing-based economy, Islamic economists recommend sharing and cooperation-based institutional structure for farmers, such as Farmers’ Cooperatives. This is in line with recommendations of various policy experts in agri-business field who have sought to curb the exploitation of the farmer and enhancing its bargaining power. This involves the setting up of producers’ cooperatives comprising the individual farmers as members. The member-farmers off-load their producer with the cooperative, which then enters the market with much stronger bargaining power and obtain better prices. The improved bargaining power may be further enhanced with access to warehousing and storage facilities. The producers’ cooperative may also provide other useful services, such as, financial services, value-addition services in the form of processing and packaging for better price-realization. The profits made by the cooperative – high or low – for the services rendered is ultimately shared among the member-farmers, thus, eliminating any possibility of exploitation by one party or another.

While conventional commercial banks are generally reluctant to deal with cooperatives, there have been good examples of Islamic banks playing proactive role in creating a network of local cooperative organizations and then placing funds with them under multiple arrangements, creating a win-win situation for all parties.[8]


[1] This is calculated as follows: Sale price of 952kg @ Rs1.60 or Rs1523.20 minus expenses (commission to intermediary: Rs 91.35 plus wage for putting the onions in sacks: Rs18.55 plus wage for handling the sacks of onions: Rs 59.00 plus duties for weighing onions: Rs.33.30 plus transportation by truck to APMC: Rs.1320) amounting to Rs.1522.20. This example is sourced from http://abpnews.abplive.in/business/onion-farmer-got-one-rupee-only-on-selling-1-ton-onion-381557/

[2] Farmer suicides are fast becoming a major societal problem rooted in the stark economic realities related to farming. For an economic analysis of farmer suicides in India, see this blog by Mohammed Alim at  https://agric.in/2012/07/15/has-the-government-of-india-done-enough-to-tackle-the-incidence-of-poverty-induced-farmer-suicides/

[3] India is the second largest onion producer in the world, after China. Forty-five percent of the onion produce in India comes from the states of Maharashtra and Karnataka.

[4] Varma, Subodh (23 December 2010). “The great onion robbery: 135% mark-up from mandi to retail”The Times of India. Retrieved 3 January 2011.

[5] Source: http://abpnews.abplive.in/india-news/ground-investigation-on-onion-rates-362524/

[6] This section draws heavily on http://mrunal.org/2013/08/food-processing-nuisance-of-apmc-acts-commission-agents-marketing-of-agricultural-produce-issues-and-constrains-for-gs-mains.html

[7] R. Salvadi Easwarana and P. Ramasundaramb “Whether Commodity Futures Market in Agriculture is Efficient in Price Discovery ? — An Econometric Analysis”, Agricultural Economics Research Review Vol. 21 (Conference Number) 2008 pp 337-344

[8] A good example is the Bank Muamalat Indonesia that created a network of Islamic financial cooperatives called Baitul Maal wa Tamweels (BMTs) and then placed funds with them for onward financing to members under alternative Shariah-compliant arrangements.

Islamic Micro-Finance and SocialResponsibility

2nd Islamic Finance Conference

Islamic Microfinance and Social Responsibility

Jeddah 2016 (IFC2016)

Venue: Effat University – Jeddah- Kingdom of Saudi Arabia

Date: April 20- 21 2016


Background of the Conference

The tremendous growth of Islamic finance has proved that Islamic finance is a viable alternative solution for conventional finance. The estimated growth of Islamic finance is around 15% and with $ 1.5 trillion asset worldwide. Islamic Microfinance is still small segment in Islamic finance industry compared to other segments such as Islamic banking and Islamic capital market, etc. Islamic Microfinance is a segment with great potential for growth. It is assessed that Islamic microfinance is 1% of the total Islamic finance. Development of microfinance helps countries to increase their growth and the welfare of the less privileged people in the society. This conference will provide you with opportunities to collaborate with Academics, researchers, government, and practitioners to develop innovative solutions to Islamic micro-financing challenges; and share best practices in this area. This will give participants in this conference the exposure to not only the theory but also the practical applications of Islamic micro-financing and their impact on economic growth.


The conference is intended for researchers, academicians, regulators, and business entities who are interested in enhancing knowledge and ideas in Islamic Microfinancing.


  1. Increase the understanding and awareness of Islamic microfinance and its implementation.
  2. Offer innovative practical solutions related to contemporary challenges on Islamic microfinance.
  3. Provide opportunities to participants share best practices and publish their research on Islamic economics and finance issues.

Strengthen the cooperation on Islamic economics practices among industry, academic institutions, and government.

List of grand themes:

  • Role of Islamic microfinance in social development
  • Entrepreneurship and microfinance
  • Alleviating poverty
  • Socio-economic impact of Islamic microfinance
  • Success stories
  • Miscellaneous topics

REGISTRATION AND ONLINE SUBMISSION: Registration and submission of full paper must be done electronically through the online submission system. Link: http://www.effatuniversity.edu.sa

Abstract Submission: Manuscript should present original idea and not published or submitted for publication in other forums. The abstract should outline the introduction, objectives, methodology, result & analysis, and conclusion. It should not be more than 300 words (MS Word using Times New Roman, 12pt font, maximum of 7 keywords and JEL codes).

Electronic submission of abstract through IFC@effatuniversity.edu.sa email. Author(s) contact information (title, names, affiliations, addresses, telephone numbers, fax numbers and e-mail addresses) must be stated on the first page of paper or abstract.

Paper Publication and Presenter Registration: Every accepted paper must have at least one author registered to the conference by time the paper is submitted; the author is also expected to attend the conference and present the paper. Conference Fees: US$ 200 for participant and US$150 for presenter (US$ 50 for student).


  1. Abstract Deadline: March, 10th 2016
  2. Abstract Acceptance Notification: March, 20th 2016
  3. Full Paper Deadline: April, 5th 2016

We look forward to receiving your submissions.

Further details