Crimson Capital News Details

January, 2012

Afghanistan: Development of Sharia-compliant Salam and Ijara Products

As part of the USAID-funded Financial Access for Investing in the Development of Afghanistan (FAIDA) project, Crimson experts have lead efforts to develop and introduce Sharia-compliant Islamic lending products in Afghanistan, with the launch of manuals for financial institutions on Salam and Ijara products.

Salam is a Sharia-compliant financial product through which the purchase and payment of a commodity (usually agricultural crops) is executed in advance of delivery, providing the farmer or micro, small and medium-sized enterprise (MSME) access to capital to operate and invest in their business.

Ijara is a Sharia-compliant financial product that is structured much like a leasing agreement, whereby ownership of an asset may be transferred from the financial institution to a leasee, after scheduled rental payments have been made and terms of the Ijara agreement have been met. Ijara also has a form that resembles operating leasing, where the leasee rents the object of the lease from the financial institution for a specific term, without ownership transferring to the leasee.

The manuals developed by the Crimson team include product description, credit policies and procedures, a product illustration / process chart, accounting procedures and sample contracts. In order to further open up access to finance for licit agricultural and MSMEs, the Crimson team is currently working on developing similar manuals for Sharia-compliant Murabaha, Musharakah and Letter of Guarantee products.

Crimson contributes to the FAIDA project under a subcontract to Chemonics International.

To access a USAID success story highlighting Crimson support to develop and introduce Sharia-compliant Islamic lending products see the link to a USAID article - Afghan Banks Provide Islamic Loans.