Diversification of Islamic Financial Instruments
90
Muqawalah mode (contracting for construction)68, which works mainly in construction
projects, is not found in other jurisdictions and it consists significant portion of finance
provided by Sudanese banks. Partnership modes (Musharakah and Mudarabah) consist about
14% of finance (compared to 0.8% only in Malaysia).
Table 41. Flow of Banking Finance by Mode of Islamic Finance in Local Currency
Mode Finance %
Murabahah 4497.8 49.8
Musharakah 637.1 7.0
Mudarabah 597.0 6.6
Salam 270.4 3.0
Muqawalah (Constructing) 1400.4 15.5
Ijarah 33.3 0.4
Istisna 7.9 0.1
Qard Hasan 20.0 0.2
Others 1571.05 17
Total (flow) 9035.0 100
Source: Central Bank of Sudan
Salam mode, which is basically used for agricultural finance, is not as effective as it
supposed to be in a country like Sudan where almost 30% of GDP come from agriculture
activities. Salam finance works well for the agriculture sector and will give the delivery of
goods which will happen in the future following the harvest season while cash is paid in
advance (CIBAFI & IRTI, 2016).
“Tackling the agriculture sector is a key priority as its growth is directly linked to improving
Sudan’s infrastructure environment. Today, agricultural lands are not well utilized in Sudan
mainly due to inadequate roads, insufficient water supply, and a lack of electric power in these
isolated areas. The agriculture sector employs 80% of the country’s workforce and accounts for
nearly one-third of GDP. In general, the agriculture sector represents a business line that banks
should focus on especially with regard to financing trade, working capital, and capital
expenditures. Nowadays, Sudan is looking to the agriculture sector as an important source of
growth and diversification for the economy ” (CIBAFI & IRTI, 2016). Therefore, finance modes
like Salam should be more encouraged and practiced next to the other tools for agricultural
financing like Muzaraa’a69 , Musaqah70 and Mugharasah71 which was not mentioned in this table.
68 Muqawalah is a contract of hire of labour, where Islamic bank provide materials and hire clients to process them. In other
words, it’s a contract where one party undertakes performing certain job or manufacturing certain good for a certain
consideration from the second party, and both of the work and materials should be provided by the first party. Muqawalah
contract is very close to Istisna contract especially in construction sector. However, in Sudan there is a separation between
the two contracts.
69 Muzaraa’a, (crop-sharing) is a partnership agricultural contract close to Musharakah where the Islamic bank provides the
land and machinery to the farmer who cultivates the land, and they share the output in pre-agreed proportions.
70 Musaqah: (irrigation purpose) is a partnership agricultural contract close to Musharakah which potentially can be used to
finance irrigated multiyear crops, dates, oranges etc.
71 Mugharasah (orchid financing) is a partnership agricultural contract close to Musharakah where the Islamic bank provides
land for growing new fruitful trees by the farmer, it is used for planting trees and undertaking the work and expenses
required by such plantation and then sharing profits.