Journal of Islamic Monetary Economics and Finance, Vol. 5, No.3 (2019), pp.

491-516
p-ISSN: 2460-6146, e-ISSN: 2460-6618

DEVELOPING FINTECH AND ISLAMIC FINANCE

PRODUCTS IN AGRICULTURAL VALUE CHAIN

R. Gratiyana Ningrat1 and Mohamad Soleh Nurzaman2

1
Universitas Indonesia, Indonesia, [email protected]
2
Universitas Indonesia, Indonesia, [email protected]

ABSTRACT
To meet the global population needs, it is projected at least eighty billion dollars in
investment per year to support the food security until 2050. Arguably, the agriculture
financing growth has stalled due to many reasons, while Islamic finance has the
potential to spur the growth of agriculture financing to promote global food security.
Meanwhile, agriculture in Indonesia is still nowhere to its potential. It is hindered by
an inefficient and underdeveloped downstream segment, low access to financial and
technology. This is a huge opportunity for Islamic finance in helping to bridge the gap
through value chain financing approach as one of the strategies to reduce risk and
provide socio-economic spillover effect along the chain. Islamic finance could promote
agricultures sustainability and a more efficient process with FinTech enabled platform.
The multiple case studies propose a sharia compliant community-based financing
model in agricultural value chain practice with FinTech enabled platform. The result
is this model integrating all actors from different market segmentation, including
landowners, suppliers, farmers, brokers, retailers, and investors into an Islamic
value chain-financing platform. However, determining buying intention, partnership
establishment, and technology infrastructure are pivotal for its future implementation.

Keywords: Agriculture, Value Chain Finance, Financial Technology, Islamic Finance.

JEL Classification: G23; O13; Q14; Q16.

Article history:
Received : September 5, 2019
Revised : Oktober 4, 2019
Accepted : Oktober 10, 2019
Available online : November 1, 2019
https://doi.org/10.21098/jimf.v5i3.1077
492 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

I. INTRODUCTION
1.1. Background
The global population continues to grow each year, and the demand for agriculture
with current existing farmers is projected to increase by seventy percent in 2050
or at least eighty billion dollars in investment per year. However, the agricultural
financial market has stalled due to several reasons: (1) Inappropriate and/or
ineffective policies, (2) high operational costs to reach remote rural population, (3)
covariance between production, market, and the risk of price, (4) the absence of
risk management instruments, (5) low demand level due to fragmentation and new
development in the value chain, and (6) lack of expertise of financial institution in
managing agricultural loan portfolio (Varangis, 2018). In 2018, Indonesia addresses
special issue on poverty alleviation in rural areas and agriculture where 30.58% of
Indonesian employment working in this sector. It is estimated based on Indonesia
Bureau of Statistics (BPS, 2019), 25.14 million people live below the poverty line
and most of them living in rural region where agriculture still pivotal to make a
living. Therefore, agriculture sector cannot be separated from development agenda
especially for poverty eradication. Indonesia has a great progress in agriculture
but the progress of smallholder farmers remains low in productivity. Currently,
Indonesia’s global food security index ranks 65 out of 113 countries one of the
challenges is lack of public expenditure for agriculture research and development.
Due to limited access to credit and inputs, smallholder farmers still vulnerable
to market price fluctuation (Oxford Business Group, 2018). Consequently, the
focus of Indonesian government policy is to provide fertilizer subsidy, grant of
agricultural supplies, and machinery instead of research and development.
Above-mentioned problems still occurred in the digital era where the complexity
is exacerbating the effect to the poorest of the poor. The needs for new approaches
for solving the emerging problems in the Fourth Industrial Revolution to create
new practices in social entrepreneurship with digital technologies are essential
(Prodanov, 2018). Thus, the demand for innovative financing for agricultural
sector is remain prevails and Financial Technology (FinTech) could promote
financial inclusion as well as high-value agriculture because it enhances the ability
to objectively quantify variation to directly conducive to the shifting of risks in the
agricultural system (McIntosh & Mansini, 2018). Moreover, Islamic finance’ asset
projected to 3.5 trillion dollars in 2021 while the SDGs agenda needed 2.5 trillion
dollars investment to reach its goals (Salıngan, 2018). It depicts the importance of
Islamic finance contribution to global development agenda. The unique properties
of Islamic finance which have a balance component in commercial, social, and
spiritual (Moh’d, Omar Mohammed, & Saiti, 2017; Obaidullah, 2015; Oladokun,
Larbani, & Mohammed, 2015; Saqib, Zafar, Roberts, Zafar, & Khan, 2014) similarly
to the nature of agricultural value chain finance that blending commercial and
social to increase the welfare for all actors along the chain.
Social enterprises see agriculture as an opportunity to disruption and one
of the issues is lack of access to financial sources. Indonesia is the third largest
smartphone market in Southeast Asia, but half of the population is unbanked and
only acquires only 85% of the country’s transaction (ANGIN, 2016). FinTech social
enterprises have started to emerge to create innovative solution to the market
especially to accelerate the financial inclusion to reach out more to rural areas.
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 493

Digital finance for agriculture is still a pristine area of research although several
current issues has been addressed, such as digital inclusion for smallholder
farmers (Agyekumhene et al., 2018), the role of Fintech platform in agribusiness
(Hinson, Lensink, & Mueller, 2019), also food security platform model (Anshari,
Almunawar, Masri, & Hamdan, 2019). Unfortunately, very little research has been
done in Islamic finance with Fintech platform enabled for agriculture value chain
despite the growing interest in digital finance from Islamic perspective (Todorof,
2018). In addition, according to Indonesian Financial Service Authority (OJK, 2019)
only 9 out of 127 FinTech registered are sharia compliant, creating plenty of room
to develop Islamic FinTech in Indonesia. For such reasons, the opportunity of
Islamic FinTech to grow the agriculture value chain financing remains as the main
topic of the research.

1.2. Objective
This study proposes a sharia-compliant community-based and institutional
financing with Fintech platform integrating all actors including suppliers, farmers,
brokers, retailers, investors, and institutions) into an Islamic value chain financing
where digital platform is adopted to enabling the whole business process, improve
transparency, accessibility, and sustainability within the agriculture’s ecosystem.

II. LITERATURE REVIEW

2.1. Agricultural Value Chain Financing
The agriculture business process links several actors along the chain to different
markets. Figure 2 illustrates the most common process, market segmentation, and
actors in AVCF (Agricultural Value Chain Financing). The most common investors
and funders in AVCF are individuals (crowdfunding), institutional fund (non-
profit, foundation, zakat, waqf), non-bank financial institutions (microfinance
institution, insurance), and banks. Overall, the business process divided into
four layers, input, production, intermediation (brokerage and retail), and finally
consumer. Each market segment has different actors involved. This segmented
value chain depicts the different process, layers, and cost needed to deliver the
product meaning the financial needs will vary across the actors and market
segments.
AVCF (Agricultural Value Chain Financing) is one of innovative way of
financing to improving the agriculture’s business process. The smallholder
farmers are not only need access to finance and technology but also the access to
other actors along the chain such as brokerage, traders, and financial institution to
increase the production competitiveness, processing, marketing, and distribution
(Meyer, 2007). Various frameworks for the value chain of agricultural finance
have differences in the views of local to international trade. Each value chain has
different risks, returns, and financing schemes so it requires financial instruments
to get optimum social and profit impact (Shwedel, 2007). Several external factors
such as push and pull factors, technology, regulation, and standardization could
provide challenges and opportunities. Providing financial access is only one of
the services provided in the agricultural value chain, besides that there is market
494 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

information, market identification, marketing, and policy. Cooperation is needed

between various actors such as the government, NGOs, agricultural extension
agents, international development agents, and one of them is financial institutions
(Digal, 2007). Through this approach, it is imperative for financial institution to
gain critical information about the borrowers from various sources within the
chain. The financial services offered to value chain actors are tailored based on
vertical and horizontal process which lead to cost and risk reduction and increased
the repayment rate (Casuga et al., 2008; Miller & Jones, 2010). This approach
supports the segmented agriculture’s value chain needs of fund by increase the
access to finance likewise access to other actors across market.

2.2. Islamic Financial Technology

Technology is necessary to establish data that are more transparent and transaction
along the chain, all to enable the agricultural value chain finance processes. It
is widely known that technology has been the backbone for financial services
development. The emerging Fintech platform offers an innovative way by
combining speed and flexibility capabilities to deliver products and services with a
more customer-centric experience compared to the traditional methods (Nicoletti,
2017). Fintech platform could increase the transparency and sustainability to
support AVCF goals by streamlining the financial process from different types
of investors. Individual investors could directly invest actors’ proposed fund
only through FinTech platform. Fintech platform could also address asymmetric
information, institutional investors could obtain data & information of borrowers
more precisely backing with advanced technology in FinTech development i.e.
artificial intelligence, machine learning, and block chain. Even, some features
could decrease operational cost in transaction i.e. digital money, mobile wallet,
RegTech, InsurTech, and payment services (Lynn, Mooney, Rosati, & Cummins,
2019).
The difference between Islamic and conventional finance is it operates
with Islamic sharia compliant i.e. prohibition of riba (interest or usury), gharar
(excessive uncertainty), maysir (unearned income). Although it is relatively new in
financial industry Islamic finance continues demonstrate its competitiveness in the
face of economic crisis and stagnation. This increase the demand for developing
innovative financial instruments and services to address contemporary challenges
in this fourth industrial revolution while still comply with Islamic sharia (Al-
Salem, 2009). As far as authors’ knowledge, there is no specific concept about
how Islamic Fintech platform could be different with the mainstream. However,
to address sharia and FinTech seems counterintuitive and questionable whether
it could coexist with and benefit from its innovation. Islamic finance considers
public interest (maslahah), relieving hardship for poverty alleviation, and make
policy which encapsulates risk and harm while technology could bring greater
transparency and efficiency such as P2P and blockchain (Todorof, 2018).
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 495

2.3. Previous Studies

Agricultural value chain finance is widely used for develop and enhance the
business process in agriculture sector. Due to its complexity and usefulness, such
an approach is usually discussed in agricultural development area although a
number of undocumented practices occur in some developing countries. There
are several papers about the development of agricultural value chain finance
approach (Meyer, 2007; Shwedel, 2007) or book of journals related to this financing
to the rural farmers (Digal, 2007; Mani, Joshi, & Ashok, 2017) also the practical
guideline to this approach (Miller, 2012; Miller & Jones, 2010). Most agriculture
value-chain analyses use interdisciplinary approach to develop the market and
products. This study aims to develop Islamic AVCF through different case studies
of development sector and FinTech platform.
This financing scheme generally embedded with market system development
to promote welfare of smallholder farmers and recent studies investigate this
form of cooperation and development (Kuhl, 2018; Rankin, Nogales, Santacoloma,
Mhlanga, & Rizzo, 2018). Khul (2018) stated that market system development
could be integrated with climate resilience agenda beyond the agriculture sector.
The approaches will create compelling synergies if the tension between resilience
and market system could be settled by focus on identifying climate change effect
to the market system. Both Value Chain Development (VCD) and Market System
Development (MSD) are most common method in Public-Private Partnership
(PPP) where the project expected to have high socio-economic spillover. However,
there is key risk where this project fails to address the poorest of the poor due to
the nature of private partner to lessen the transaction cost. This paper investigates
how Islamic private actors have potentials to serve the underserved market with
digital platform model.
In the era of digital revolution, some recent studies about innovation and
digital technologies in agriculture finance have been carried out by Agyekumhene
et al. (2018) and Anshari, Almunawar, Masri, & Hamdan (2019). Agyekumhene
et al. (2018) suggest digital platform shows potential to generate new form
of network and cooperation in a complex configuration of actor interaction
in traditional value chain financing based on their findings in maize farmer in
Ghana. The important fact to harnessing the digital platform is not only about
digital inclusion and about access for farmer but also effective intermediation and
network governance in agriculture ecosystem. In addition, Anshari et al. (2019)
develop a platform to integrate agriculture business process to various actors. As
such, the platform uses smartphone as a general-purpose device to facilitate all
business transaction. The digital marketplace is expected to attract all actors with
personalized services, improve market price transparency, and digital payment
to promote the sustainability of agriculture ecosystem. Both studies depict the
role of digital platform to finance the agriculture business and provide solution
from technical process aspects. Hence, this paper accommodates from financial
products, development, and business partnership perspective to prove Fintech
platform will bring solution to agriculture business actors and stakeholders.
In contrast, it is rare to find some reference of this financing approach from
Islamic perspective. Most of the studies are investigate the Islamic microfinance
practice in agriculture (Obaidullah, 2015) or appropriate modes of finance in some
496 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

specific case and area (Moh’d et al., 2017; Oladokun et al., 2015; Saqib et al., 2014)
although agricultural value chain finance is quite mainstream in agriculture and
development sectors. Obaidullah (2015) undertakes a review of various Islamic
microfinance interventions in agriculture where it is strongly argued how the
conventional products and services are not acceptable in the Islamic societies. It is
also found that, there is no one-size-fits-all mode of finance in agriculture sector.
For instance, Saqib et al. (2014) suggest types of musharaka with the concepts of
muzara’a and musaqa to finance agriculture in Pakistan particularly in urban areas
as compared to rural areas but still push Islamic banks to work for prosperity of the
poor. Oladokun et al. (2015) develop a Muzara’a supply chain model although it is
similar with value-chain finance concepts through land partnership. In addition,
Moh’d et al. (2017) use the waqf-linked muzara’a supply chain model as an
alternative model to finance clove crop production in Zanzibar. All studies suggest
traditional way of supply chain financing with quite complex procedure and do
agree it will face challenges in implementation without mentioned technology
support. Therefore, there is still gap in the financial technology in agriculture from
Islamic perspective and how it could enhance the flexibility to design and offer the
user centric product and services.
Therefore, it remains a puzzle what kind of Islamic finance model that
could contribute the development of agricultural value chain finance in the era
of digital technologies and how it could bring solutions? This paper investigates
those previous findings concurrent with practical insights from market system
development and agriculture financial technology platform to develop the Islamic
agriculture value chain financing products based on current agriculture landscape
in Indonesia.

III. METHODOLOGY
3.1. Case Selection
To begin this study and investigate how AVCF and market development works,
we chose a multi-year public private partnership in agriculture rural market
development, which established since 2013 as case study. This partnership involved
various stakeholders for its program in agribusiness’ market development,
irrigation, research and development, and agricultural value chain financing.
This program adopts a market system development and agricultural value chain
finance approach to spur the growth of smallholder farmers and partners with
private sector, local and national government, business associations, non-profit
organization, and research institutions which aiming to benefit one million
smallholder farming households in eastern Indonesia. For AVCF with FinTech
platform we selected Crowde, an ecosystem builder for digitizing agricultural
process from upstream to downstream through peer-to-peer lending mechanism
established since 2015. Besides providing finances to smallholder farmers, Crowde
also engaged input suppliers and off takers to build the sustainable agriculture
ecosystem, provide access to technology, financial management education to
equipping agricultural value chain actors to develop their businesses. Crowde
disbursed fund to 10,000 farmers mostly in West of Indonesia from 22,400 lenders
in 2018. Not only peer-to-peer lending mechanism, currently Crowde collaborated
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 497

with banks and other institutions for B2B financing model. Both institutions are
using conventional financing as their primary products. Crowde also launched
their Islamic financing scheme for farmers in 2018. Therefore, from the cases which
market and technology have been established could be incorporated in a modeling
for Islamic FinTech enabled platform.

3.2. Method
3.2.1. Case Study Method
This study focuses on different agricultural value-chain finance practices. A case
study method is useful method for preliminary investigation where AVCF with
FinTech enabled platform is considering new field of study and how Islamic
finance could provide solution in AVCF with FinTech enabled. The focus of case
study is to explore “why” and “how” questions (Yin, 2014). The main goal of this
study is to find Islamic finance products to provide solution in Fintech platform
that use AVCF approach. We keep the anonymity of one of the institutions without
diminishing the main goal of this study. This study investigates “why” and “how”
the institutions implement agricultural value chain finance approach which are,
- Why agricultural value chain finance approach?
- How do the agricultural value-chain finance practices go about the market?
- What are current AVCF products and how is the transaction?
We use as case study to investigate AVCF process, transaction, and market based
in non-technology based and FinTech enabled platform on figure 1 framework.
A case study could be a practical solution with purposive sampling when a big
sample population is difficult to obtain. Multiple case studies approach provides
the potential for generalizability of findings (Miles & Huberman, 1994). Due to
the triangulation evidence this method provides a more rigorous approach than
a single case study (Yin, 2014). Case study is use to answer the research question
with qualitative analysis approach from institutions’ public report and interview.
Then, based on AVCF process, transaction, and market results we investigate
from Islamic finance product in agriculture, contract, and trade financing. The
outcomes of Islamic agricultural finance solutions are also evaluated from product
management perspective without compromising Islamic financial product
innovation (Todorof, 2018).
498 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

Theoretical Foundation Case Study

Identify Problem and
Case Analysis
Critical Review

Proposition
AVCF Process, Transaction,
and Market

Presentation
Islamic Finance and
FinTech Model in AVCF

Iteration
Validation
Validate Model

Figure 1.
Case Study Analysis Process by Authors

3.2.2. Data Collection Method

Following Krippendorff (2004) and Yin (2014), this study starts with data
collection through purposive sampling where. In-depth interviews with product
development, operation, and management team has been carried out to construct
agricultural value chain finance and market development practices as well as
agriculture FinTech as sources of primary data i.e. transcript, draws. Guided by
a semi-structured protocol in which interview lasted approximately 90 minutes
in average. Some internal and public document of the institutions also collected
to support the qualitative data (Creswell, 2014). In addition, some publication
and peer-reviewed journals on agriculture’s value chain process and FinTech
have acquired as secondary sources of data i.e. text, graphic as a supportive
information on models. Then, the triangulation to validate different sources to
understand different perspective from practical views and studies within of the
same phenomenon in AVCF and Financial Technology in Agriculture. We used
the thematic analysis to cluster the results into (1) process, (2) products, and (3)
platform model combining with current literature in agriculture’s Islamic finance
and FinTech platform. Afterwards, we used the results to modeling the Islamic
agricultural value chain finance in FinTech. An interview of experts along with other
information provides an avenue to increase construct validity. The credibility of
this study could be increased by prolonged engagement, triangulation, referential
adequacy, peer debriefing, and member checks (Lincoln & Guba, 1985).
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 499

3.2.3. Coding and Data Analysis

The content analysis was chosen to analyze the agricultural value chain finance.
Content analysis is a research method for making replicable and valid inferences
from texts (or other meaningful matter) to the contexts of their use. This technique
should result in finding that are replicable in time and different circumstances as
the form of reliability (Krippendorff, 2004). The data sources comprise primary
and secondary type of data and acquired in parallel to explore AVCF process,
transaction, and market. Then each researcher compares all codes with coding in
relevant literature, which leads to construct an agricultural value chain market for
ACVF and market development theme also to add some features for technology
development with an open method for coding. Then, we compare to agriculture
FinTech case and do triangulation between the data acquired to build a model for
Islamic product. Afterwards, the result consistently reviews and compared with
corresponding descriptions and experts from product management perspective.

Table 1.
Coding Examples
Some Interview (translated to English)
Category Codes
Program FinTech
“We can gain information
“From farmers, we gain
Information from local ‘Toko Tani’ (Input
information which local inputs and
along the chain Suppliers) about farmers’
off takers they often transact with.”
Reason historical transaction.”
adopting “We have other program to
“If we involved local input
AVCF develop the market first before
suppliers and off takers with
Approach Improve farmers’ financing. We select actors
us, we can also digitize the
income and partners with us which
agricultural ecosystem to improve
aiming to improve smallholder
famers’ productivity”
farmers’ income”
“We propose farmers’ project to
our platform for lenders. Mostly
“We build a partnership with
we have already disbursed
local financial institution i.e.
AVCF practice AVCF product to farmers’ whether doing
cooperation or microfinance
in the market mechanism partnership with local suppliers to
institution and making a
disburse in kind or cash directly to
customized product”
farmers. There are also for off-taker
and input supplier”

IV. RESULTS AND ANALYSIS

4.1. AVCF and Market Development
The relationship between AVCF and market development is the similar nature
of both approaches to promote agriculture economic growth and welfare, which
have been implement in the program of this case study. The Theory of Change
as the base of this case is agriculture sector have strong poverty-alleviating effect
where every increase of one-third in yield might reduce the poverty by a quarter
(Irz, Lin, Thirtle, & Wiggins, 2001) and three times more efficient in poverty
eradication (World Bank, 2008). The program use market system development
which to linking the poor to markets and use private sector intervention in poverty
alleviation and economic growth (Donovan, Franzel, Cunha, Gyau, & Mithöfer,
500 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

2015). Market system development aim to improve farmers’ access to market

to increase their competitiveness as well as their income (Briones, 2015). One of
problem to be addressed is access to formal finance of smallholder farmers in rural
areas. The financial institutions are reluctant to enter this market because of their
perspective about agriculture finance is not profitable, low repayment rate, and
higher lending risk (Chen, Joshi, Cheng, & Birthal., 2015). Hence, this program
uses Value Chain Finance (VCF) approach to attract more stakeholders to form
partnership. Value chain financing often requires a different attitude by financial
institutions to integrate all value chain actors within the financing activities for
instance individual farmers’ loan analysis, the administration, and monitoring.

Low Income Market Middle/Upper Income International Market

Market
Intermediaries
Market

Wholesale/
Small Market Brokerage
Retailers
Banks Exporter/
Consolidator
Non-Bank Financial
Producers

Institutions
Smallholder/Group Of Farmers
Institutional Fund

Individual
Investors
Suppliers

International Grade
Local Inputs Certified Inputs Inputs

Financial Flows
Product Flows
Source: Compiled by Authors’, 2019

Figure 2.
Segmented Agriculture’s Value Chain Finance

The other purpose to intervene the rural market is to drive traditional

supply chain to modern value chain. Mostly in rural market, the production is
in supply-led bulk and fragmented with high marketing costs and margins. The
extension services are local agencies and financing from moneylenders, local
suppliers, and traders, relative mostly to production. In contrast, modern value
chain is market-driven and integrated, less number of market intermediaries,
and financing internal and external chain (Casuga et al., 2008). There are three
market segmentation generally in agriculture’s value chain, poor/rural or low
income market, middle/upper income market, and international market which
interconnected and depicting the importance of value chain innovation (Jones,
2011) simplified in Figure 2. The way this program innovating agri-value chain
with multi-stakeholder processes to promote the inclusiveness of smallholder
(Kilelu et al., 2017) could be included in policy implication for Islamic FinTech
platform.
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 501

4.1.1. Agriculture Financing Product

Value chains differ with one another and could be classified into three types of
business models which are (i) producers, (ii) buyers, and (iii) facilitators (Miller,
2012). A producer-driven value chain refers to upstream value chain actors (i.e.
producers) where they organized and form a cooperative group or association
to gain access to markets, to reduce marketing and transaction costs. Contract
farming is a common form of buyer-driven chains, where traders, exporters,
processors, retailers have control to the production process. By this type of model,
the transaction costs of aggregation of scattered small marketable surpluses, to
optimize the processing capacity and work force, and to meet market preferences
of quality of harvest. To avoid monopolistic rent, the developmental organizations
facilitate collective action to promote the market competitiveness for smallholder
farmers (Gyanendra Mani & Joshi, 2017). Such chains are termed as facilitator-
driven. However, the implementation in Indonesia’s rural market is quite
paradox. The interviewee says the rural farmers have low productivity but
not forming strong groups or association. The buyers are quite strong to drive
agriculture market in rural area. To reduce risk, it is suggested to provide loan to
the strongest actors along the chain (Meyer, 2007). Even though the program uses
market system development, which means using facilitator driven model, this
program use buyer-driven chains instead to strengthening the value chain finance
due to market condition. Additionally, the program is just temporary means that
to ensure the sustainability of market system development, it builds private and
public partnerships. Before doing exit strategy, they evaluate the intervention
reliance ratio whether the costs incurred are borne by partners more than the
program cost or otherwise.

Purchase
Guarantee
Buyer Financial Institution

Value Chain Loan

Plus Pricing

Trader
Repayment
in-Kind
Input Loans
& in-Kind

Smallholder Farmers

Source: Compiled by Authors’, 2019

Figure 3.
Common Value Chain Financing Mechanism
502 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

The common type of value chain financing in rural market is internal value
chain when input supplier or trader provide credit to the smallholder farmer,
which takes place within the value chain. On the other side, external value chain
is the loan issued by a bank to farmers, which is made possible by value chain
relationships and mechanism (Miller & Jones, 2010). The program aim to shift the
mechanism where microfinance institution, cooperation unit, and regional banks
could provide loans to smallholder farmers and other value chain actors. The main
reason is financial institutions have more capabilities to develop financing product
compared to input suppliers and traders; hence it will restore the role of each actor.
The VCF mechanism is different depends on the value chain actors’ necessities and
find the strongest and less risk actors within the value chain to build a partnership
(Miller & Jones, 2010). The reason why they still impose interest fee loan instead of
profit-loss sharing is to reinforce the farmers’ yield which expecting it will be more
efficient in neutral shock condition (Sugema, Bakhtiar, & Effendi, 2010).

4.1.2. The Opportunities of Technology and Islamic Finance with Public-Private

Partnership (PPP) project
“The business model that we use is different in each areas and commodities. Mostly farmers
have low self-confidence because of their low education level and its different depends on
their capacity and their market segment”
The smallholder farmers linking into three different market segments: weekly
or poor/rural market, middle to upper market, and international market (export).
The market linkage is different between smallholder farmers depending on their
capabilities in productivity, financial literacy, and access to technology. Internal
financing between actors already happened in form of traditional supply chain e.g.
input suppliers to farmers, off-takers to farmers before market intervention begin.
To build market system in AVCF, they find the strongest actors, less risk, and have
social value based driven to build a partnership. Collective action is essential, but
it not may happen without intermediation by the nongovernmental organization,
lead firms, or government intervention.
“We rarely intervene the low-income market due to the risk of daily fluctuation
and transaction…”
There is an opportunity for Islamic social finance to low-income market.
Nevertheless, this program aims to increase the livelihood of smallholder farmers
even below the poverty line. They do not find any financial instrument to sustain
the low-income segment. All financial products are using conventional loan, where
loan shark could disadvantage the farmers i.e. pay high interest rate, pay less than
market price before harvest. They assume interest rate loan will be more cost
efficient instead of profit and loss credit because it will reduce technical assistance
cost to ensure the return will be favorable.
“Usually we will ask the input suppliers about the historical transaction of
several farmers. They remember the payment schedule and some profiling data
for credit scoring”
The credit scoring process is still acquired manually from value chain actors’
memory or unstandardized paper notes. It will increase bias depending on the
ability to remember the historical transaction for their clients (farmers). Therefore,
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 503

it needs data acquisition techniques with technology to gain comprehensive

information about value-chain finances, and FinTech could record the historical
transaction or acquire the initial data through daily business process.

4.2. Agriculture FinTech

To promote smallholder farmers’ income, Crowde created a financial technology
platform as the first digitalized agriculture ecosystem. The use of financial
technology is to increase the financial inclusion of agriculture businesses through
the ease of financial access with personalized services (Anshari et al., 2019;
McIntosh & Mansini, 2018). Through financial inclusion, it could increase their
participation to the market which could help them to promote farmer’s welfare
(Casuga et al., 2008; Prabhakar, 2019). This platform encourages funders or lenders
both individuals and institutions through crowdfunding could select wide-range
of projects to invest their money in certain period. By linking all actors, it could
create a more sustainable and integrated agriculture ecosystem (Anshari et al.,
2019). The process is simple, to propose a fund, borrowers should provide project
document to be assessed by Crowde. After being accepted, the project could be
submitted and published within limited time into the platform where funders
could choose the project. After the period of crowdfunding or the amount proposed
has been fulfilled, borrowers could use the fund then will pay the principal and
return when the project has finished.

Off Takers
2
Project
6 7
Fu

Harvest
nd
Re

s
tu
rn

1 8
Docs FinTech Enabled
Farmers Investors
Platform

4 3
5
Fu

Produce
Fu
nd

nd
s

Input Suppliers
Source: Crowde, 2018

Figure 4.
FinTech Enabled Platform in Agriculture

Crowde created a collective mechanism with field officer to form a group of

farmers based on location and act as an intermediary between farmers and Crowde
to ensure value chain actors will get benefit from the system (Agyekumhene et al.,
2018). Their main role is to ensure the data input, farming process, and funding
collection run smoothly. Crowde developed several applications for each value
chain actors who served by the platform. The data transaction between input
504 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

suppliers, farmers, and off-taker would be integrated into one platform to be

process as collective information to create insightful information, which could be
shared to all actors. This technology could fill the gap for market development
program where they still manually gathered all data from each value chain actors’
network.

P2P Platform

Point of Sales and Group of Farmers

Off-Taker Apps
Apps Apps
Input Suppliers Farmers Off Taker
Supplies transaction Input, Process, and Post Harvest
data Output data Transaction Data

Transaction Flows
Data Intergration Flows
Source: Compiled by Authors’, 2019

Figure 5.
Data Flows in FinTech Enabled Platform

4.2.1. Agriculture FinTech Products

As agriculture financial technology platform, Crowde has separate financial
products in conventional and Islamic scheme. Conventional products have loan
with interest rate and profit sharing mechanism without loss sharing. Meanwhile,
Islamic products mainly in murabaha (cost sales plus) and musharaka (joint-
partnership). Crowde acts as an intermediary between farmers and investors for
disbursement and monitoring through field officer.

a. Conventional Products
The loan scheme is like credit loan in general where the borrower will pay principal
and interest loan monthly. The disbursement process will be based on agreement
whether based on cycle or once a month. The monthly rate is varied, mostly will
charge 2-3% per month then the platform will get interest rate shared half with
investors or 2:1 between investors and Crowde respectively.

Invest Disburse

Lenders FinTech Platform Borrower

Return Share Pay

i: -1.5% - 2% i: 1 - 1.5% i: 2 - 3%
Source: Compiled by Authors’, 2019
Figure 6.
Loan Scheme
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 505

The most popular scheme among farmers is profit sharing where the payment
return will be depending on their productivity income. The platform will disburse
some percentage of loans deducted after management fee. The profit-sharing rate
will be based on capital contribution between borrower and lender which around
60:40 respectively. If loss occurs, farmers should pay the labor cost. Both scheme
have flexible payment based on harvest cycle, although it depends on the nature
of commodities which is required to increase the adoption rate of formal lending
instead of informal lending (Meyer, 2002). The flexible payment mechanism also
increase the likelihood of farmers’ access to credit and minimize the risk of seasonal
horticultural commodities farmer (Weber, 2013) which took up the majority of
Crowde’s financing portfolio.

Loan: 100% Invest Fee: 3% of Loan Disburse 97% Loan Value

Lenders FinTech Platform Borrower

Profit Sharing : Return Share Profit Sharing :

30 - 40% 60 - 70%
Source: Compiled by Authors’, 2019

Figure 7.
Profit Sharing Scheme

b. Islamic Products
Crowde also has Islamic finance product as an option for borrowers and lenders.
Two modes of finance, murabaha (cost-plus sale), which means sales agreement,
and musharaka (partnership), where lender and borrower share some proportion
of project capital in certain farming period, play significant roles. Crowde acts as
the brokerage or wakala between lenders/funders and borrowers where they will
get some fee or ujra based on agreement in each transaction. Murabaha in this
context is quite similar with internal financing from input supplier to farmers.
FinTech platform will use the fund from lenders to buy input needed by borrowers.
Then, chosen local input supplier will distribute in-kind product to borrowers and
will pay the product with agreed price and payment schedule (Obaidullah, 2015).
The payment schedule could be monthly based or deferred at the end of farming
cycle full with principal and margin (agreed price). Lastly, the lenders will get the
principal and return at the end of period.

Input Suppliers

Order Cost Plus Sale Distribute

Invest

Lenders FinTech Platform Borrower

Margin Ujra Plus Margin

return
Source: Compiled by Authors’, 2019

Figure 8.
Murabaha – Cost plus Sale Scheme
506 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

Project
Share: 70 - 95% Share: 5 - 30%

Invest Disburse

Lenders FinTech Platform Borrower

Profit Sharing: Ujra Profit Sharing:

20 - 45% 55 - 80%
Source: Compiled by Authors’, 2019

Figure 9.
Musharaka Scheme

Murabaha mechanism has low risk but not as popular as musharaka. The
flexibility of funding usage such as to pay labor, rent, input, and processing
cost is preferable than receive credit term only for farming inputs. Generally,
funders will contribute 70-95% of the project value whereas borrowers have
5-30% proportion of fund. Then, profit and loss sharing term will be based on
agreed upon the project. The profit range for funders is 20-45% and 55-80% for
borrowers depend on risk assessment and fund proportion. Loss will be shared
between funders and borrowers up to 50:50. Crowde will only get management fee
whether based on fraction of fund or certain amount of fee. Despite the efficiency
in musharaka scheme is always warranted between two parties (Sugema et al.,
2010) smallholder farmers still reluctant to adopt Islamic finance as their source of
financing due to lack of knowledge and awareness about the product compared
to conventional loan (Abdul Rahman, Muhammad, Ahmed, & Amin, 2016). The
development of Islamic modes of finance in Crowde is on initial stage; therefore,
to build awareness to increase adoption is important to be incorporated in support
function and policy implication. In contrary with market system development
program that focus on how to create the market work for the farmer with AVCF
approach. Crowde operation is leaner by only providing working capital loan to
farmers and assisting their day-to-day operation.

4.2.2. Building Islamic Digital Social Ecosystem in Agricultural Value Chain

“Yes, we have field officer to ensure our service will benefit the farmers... We are
currently developing the data acquisition tools and process for better market
information for the stakeholders especially farmers”
Crowde selected a group of farmers with field officer to ensure the farmer will
get benefit from the ecosystem, gain trust from farmers, collect the payment, and
input the farmer’s data into the apps. Crowde uses external financing without
any collateral to secure the credit process but use field officer to assist group of
farmers for farming and collection process. Crowde only uses receivables and
contract as guarantee for factoring or invoice financing to traders or off takers. It
needs further technological development for collateral and guarantee for instance
contract agreement from actors within the chain. In the process of integrating data
from input supplier, farmer, and off taker the apps promote transparency and
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 507

better decision process in agriculture value chain. This is one of the efforts to use
technological innovation to enhance market competitiveness of agriculture value
chain financing.
“We just launched our pilot project in 2018. Although a lot of contributor excited to
fund the project, the farmer still reluctant due to their unfamiliarity with Islamic finance
scheme…”
Recently, developing Islamic financing product, but still low adoption from
farmers’ side due to lack of awareness and knowledge about Islamic finance
compared to conventional product. It needs further investigation to know more
about the determinant for behavioral intention and how to increase adoption
rate from farmers’ side. Crowde only focuses on short-term investment product
in agricultural financing by provide working capital to value chain actors. A gap
provides access to finance to the low market segment and Islamic finance could
provide several options such as zakah, waqf, and qard al-hassan,
“Yes, an INGO approaches us to build a partnership to increase farmer’s access to
finance. Still in progress…”
Social FinTech enterprise has potential to accelerate and support development
agenda. This could be an opportunity to build an ecosystem of partnership with
each core of abilities. FinTech do not have capability to increase the productivity
through technical assistance while NGO has its own. Meanwhile, NGO does not
have technology to increase the efficiency of ACVF process. It illustrates what
kind of partnership could be built between the sectors and Islamic finance have
unparalleled potential with Islamic social institution. However, this study only
provides the digital ecosystem model to support this kind of partnership and will
be discussed in section 4.3.

4.3. Islamic AVCF with FinTech Enabled Platform (AVCF-IF)

Developing Islamic financial products in agriculture should incorporate various
indicators such as profitability, public interest or social maslaha, and sharia
compliant principle (Al-Salem, 2009; Cebeci, 2012; Todorof, 2018). The Agriculture
Value Chain Finance Islamic FinTech will include the interconnected sub-sector
value chain to build Islamic finance products for AVCF. Low market needs higher
dependency for support entities, extension services, and assistance. The insights
from market system development program and agriculture FinTech also will be
addressed in policy implication from technology to support function aspect.
The value chain divided into three main actors, suppliers, producers, and
market intermediaries in addition to three-market segmentation, low-income
market, middle/upper income, and International market. The digital platform is
linking agriculture value chain actors, landowners, funders, and end-consumer to
propose fund, renting a land, to buy and sell input and commodities between input
suppliers, farmers, market intermediaries, and end consumer. The core feature in
this platform is not a farming digital marketplace, but providing Islamic modes
of finance to enabling the transactions happen in one platform. For instance, a
farmer needs local inputs from nearest input supplier, farmer choose the product
available with deferred payment cost-plus contract, it will propose to community
or institutional investor depends on the business days required, after that farmer
508 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

could obtain the order directly from input supplier. Field officer depending on
farmer’s literacy on technology could represent this mechanism.

4.3.1. Islamic AVCF Products

Based on multiple case studies, the transaction processes between actors are
translated into appropriate Islamic finance modes of finance. Islamic agriculture’s
financing focuses on production process which smallholder farmers and
landowners with modes of finance such as muzara’a & mukhabara (Oladokun et al.,
2015), and musharaka-mudaraba (Saqib et al., 2014). Also, some finances help poor
smallholder farmers with productive zakat and qard al hassan (Obaidullah, 2015).
Currently, Islamic FinTech in agriculture focusing to develop musharaka, murabaha,
salam, and istisna contract to bridging the fund between investors and farmers.
Meanwhile, the AVCF approach links all actors to increase the likelihood of high
value production and expanding farmers’ reach to export oriented market is
considerably new in Agriculture FinTech. Figure 4 shows Islamic AVCF products
to support FinTech enabled platform.

Middle/Upper Income
Low Income Market Market International Market
Intermediaries

Murabaha
Market

Qard al Hassan Wakala bil Ujrah/Factoring

Mudaraba - Musharaka
Buy

Murabaha
Producers

Rent Sell
Landowners Digital Platform Ijara / Muzara’a & Mukhabara / Musharaka
Zakat Qard al Hassan Bai-Salam & Istisna
Invest & Funding
Suppliers

Investor / Funds Murabaha

Qard al Hassan Wakala bil Ujrah

High dependency Support Function Low dependency

Source: Compiled by Authors’, 2019

Figure 10.
Islamic Agriculture’s Value Chain Finance Products with FinTech Enabled
Platform

Firstly, in the process of AVCF, FinTech act as an intermediary or wakala for

investors/funds to transfer the investment and in landowners’ case to offer their
land asset available that could be managed by producers based on project and
available farmers on digital platform. Through AVCF approach, every layer of
value chain in market segmentation has different types of modes. Low-income
market segment is appropriate to be funded by donation, crowdfunding, and
non-profit institutional fund i.e. productive zakat. Middle and upper is the most
common market targeted by AgriTech where all types of investors could contribute
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 509

to the project. Meanwhile, international market needed institutional investors i.e.

non-banks financial institution and banks to accelerate the investment fulfillment
instead of through crowdfunding scheme. Customarily, suppliers provide inputs
to farmers based on demand and cycle for low-income market hence they do not
have invoices available. Therefore, the most appropriate modes of finance are qard
al hassan which offer debt financing without interest for low segment suppliers and
murabaha where FinTech have partnership with input distributor to offer credit-
cost plus sales with deferred payment. Then, both productive zakat (Muslims’
charity) and qard al hassan will support cost of inputs and other operations for
lowest income farmers and mustahiq (people who allowed to receives zakat).
Murabaha scheme also one of financing alternatives for low segment market to
prevent inappropriate usage of lump sum money unlike zakat and qard al hassan
but applies to non­-mustahiq farmers. Such practices apply for traders in small or
weekly market where qard al-hassan and murabaha output from farmers could be
bought and sold with small profit if using deferred and credit payment. Otherwise,
smallholder farmers could sell directly to the closest market within the value chain.
This flexible payment schedule is to help low segment’s cash flow until reach the
targeted market without any excessive cost added to final price due to financing.
For suppliers in middle-upper and international market segment where most
of them have contractual based to deliver inputs to the group of farmers and
plantation, wakala bil ujrah or Islamic factoring financing is the most appropriate
modes of finance. The difference between conventional invoice financing, the
borrower only pays fixed fee for the financing services against account receivable
not based on interest fee. This is to ensure good operating cash flow for the
borrowers where its receivable payment schedules different with the day-to-
day operation. Additionally, murabaha for buying supply also could be applied
for this input supplier. The mechanism could be in form of murabaha lil amir bisy
syira where the borrower order FinTech to buy the goods and sell with cost plus
price, which could be applied to institutional investors instead of community. The
payment schedule of murabaha could be deferred (muajjal) or credit payment. For
land asset, landowners could offer their land to be managed by smallholder and
farmers’ group through muzara’a agreement if the landowner provide inputs to
the smallholder farmers and mukhabara if the farmer use inputs from his own then
the production output whether loss and profit will be shared according to the
agreement. If mukhabara and muzara’a still face uncertainty with profit and loss
sharing principle in some commodities, ijarah could be one of alternative scheme
for landowner to offer his asset to the farmers by charge some fixed fee based on
period of usage where the Fintech platform will inform the price to the farmer
members in the platform.
Meanwhile, bai salam & istisna is practically different but have the same
scheme where the smallholder or farmers’ group received payment in advance
for specific production. Bai salam has rigid time delivery and cannot be cancelled
where borrower got full payment in advance. Istisna is a process-based contract
and the borrower received the payment based on progress or another flexible
payment. Then, Fintech platform will sell commodities to the market to receive
the profit. This contract is specifically for producers who do not have access to the
market intermediaries. For producers who have strong access to the market could
510 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

propose musharaka contract to producing the commodities where both producer

and investor have share of equity in the project meaning have proportional profit
and loss sharing based on agreement where Fintech platform is the extension
of investor to oversee the project through field officers or closest actors in value
chain. Such an attempt requires rigor analysis and measurement from FinTech
side to ensure the production capability, risk, and other variables are appropriate
to implement this mode of finance. Hence, musharaka is suitable for middle-
upper and international segment with highly experienced producers. As already
explained above how wakala bil ujrah and murabaha work, market intermediaries
are compatible with the nature of those trade finance. The concept of mudaraba is a
partnership between investor and manager in this context is market intermediary
to run business trade. The difference between mudaraba and musharaka is the
investor bears all risks while the market intermediary gets profit share. Therefore,
the combination between mudaraba-musharaka contracts is established to reduce
the risk between investor and wholesaler or broker. It means both could have
proportionate capital also profit and loss sharing while Fintech platform have
fewer roles in supervising the project.

4.3.2. Digital Hub for Islamic Agriculture Value Chain Actors and Stakeholders
Furthermore, technology could complement market system development to
reduce the asymmetric information. Figure 11 illustrates a comprehensive digital
hub for actors and stakeholders with market segmentation. This model includes
development and commercial perspective for a more sustainable agriculture. This
digital hub could integrate and mapping all actors in agriculture sector governed
by network created by FinTech enabled platform (Agyekumhene et al., 2018).

Funding

Crowdfunding Small Market Wholesale/Retailer International Buyer

Purchase
Funding In Kind/ Guarantee
Financing

Zakat & Waqf Low Income Market Rent & Mid-Upper Income Exporter/ Funding
Market Smallholder Islamic Banks
Institution Funding & Smallholder Farmers Partnership Consolidator
Farmers
Technical
Assistance
Landowners In Kind

Funding
Local Suppliers Certified Suppliers International Grade
Funding
Market Interection

NGO-INGO
FinTech Enabled
Public Private Partnership
Business Process
Government Market Interection
Source: Compiled by Authors’, 2019

Figure 11.
Digital Hub for Actors and Stakeholders
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 511

In addition, government could have a better view to formulate the agriculture

policy and market intervention by oversee the information of ecosystem gathered
from FinTech enabled platform (Agyekumhene et al., 2018). This could form
a better development program through Public-Private Partnership to aim the
Theory of Change. Making digital social entrepreneurs as intermediaries for
PPPs could increase people and stakeholder engagement, address social needs
that not well addressed by public policies, and as value added for technological
innovation process of the business. (Battisti, 2019). Zakat and Waqf institutions
also could formulate the technical assistance and program for low income market
smallholder farmers with a more comprehensive value chain perspective not only
silo perspective. Therefore, the excluded and relatively poor population could get
benefit from access to finance even though there is another variable to increase the
likelihood to build their entrepreneurial mindset and habit (Augsburg, De Haas,
Harmgart, & Meghir, 2015). As mentioned in section 4.3.1, qard al hassan and zakat
modes could support the low market segment actors even development program
and the current FinTech model does not have financial products to support the
market segment. Landowners also could rent their land with ijara scheme. Both
landowners and farmer who own the land could have access to other actors
to form a partnership in muzara’a or mukhabara. Community based funding
could support low market segment with infaq and waqf mode for social driven
projects. On the other hand, they could also fund the middle-upper market project
for commercial driven projects. They could have both social and commercial
investment portfolio. Islamic banks could focus on financing the less risk and
high profitability agriculture project such as upper and international market
segment with a more complex form of contract. Meanwhile, the role of FinTech as
the third party is to ensure that the transaction proceeds based on contracts and
agreements as the data platform should be supported by advanced technology
and infrastructure (Lynn et al., 2019; McIntosh & Mansini, 2018). This digital hub
model based on case study findings is to prove the possibilities are endless for
Islamic Fintech platform to develop the agriculture sectors. Thus, from business
practice to regulator could see this as high value opportunity to spur the growth of
this sector through a network formed by FinTech enabled platform.

V. CONCLUSION AND RECOMMENDATION

5.1. Conclusion
This study emphasizes in the era of Fourth Industrial Revolution; digital
technologies could be the solution to emerging social problems and one of them is
agriculture. The digital innovation to link all agriculture’s value chain actors from
upstream to downstream segment is undoubtedly essentials to spur its growth
and sustainable development. AVCF approach with FinTech enabled could be a
very useful platform to enhance the flexibility with customer-centric products
and services particularly to promote access to finance to AVCF actors. This study
suggests that Islamic finance could contribute its financial development to all market
segmentation and value chain actors from various fund sources and stakeholders.
Although, AVCF FinTech could tackle some issues in asymmetric information
and higher access to finance. To build the whole system of agriculture’s value
512 Developing Fintech and Islamic Finance Products in Agricultural Value Chain

chain first is crucial before implementing this AVCF FinTech approach to ensure
its market competitiveness and sustainability. This paper only discusses Islamic
AVCF modes of finance based on market segmentation in FinTech. This conceptual
framework has not been evaluated systematically and reviewed comprehensively
in a form of experimental design.

5.2. Recommendation
Therefore, based on findings there are some important areas for further discussion,
opportunities, and policy implication which are:
Digital technologies could be the solution to emerging social problems. In the
era of Fourth Industrial Revolution, societies should ceaselessly ensure that no one
left behind to promote socio-economic justice. The future research could assess
in what extent digital technologies, could provide value added to development
agenda in agriculture sector.
Another future research recommendation is determining behavioral intention
for AVCF Islamic FinTech products. One of the issues is lack of farmers’ knowledge
and awareness about Islamic finance products, which leads to low adoption. It
is important to determine the attitude towards buying intention to use Islamic
finance and know what is hindering them to propose fund with Islamic finance
compared to conventional products. Then, we could conclude the recommendation
to increase the intention to use Islamic agricultural finance product and catering
their needs into the product development and user experience.
In addition, the importance of development of technology support and
architecture. To implement the Islamic segmented AVCF needs further and
sophisticated development in technology features i.e. AI, blockchain, digital
marketplace, smart contract, digital wallet and payment as well as system
support i.e. InsurTech, RegTech (Hinson et al., 2019; Lynn et al., 2019). One of
crucial technology for enabling AVCF-IF is smart contract. The use of block
chain technology to integrate all transaction in one chain of data to ensure the
implementation is compliant with the contract. The sharia-compliant smart
contracts and other technological innovation for agriculture value-chain financing
need further investigation. Those technologies could increase the operational
efficiency for business practitioners in AVCF.
The important highlight where the regulator could play important role is
partnership establishment of extension services and support entities. Institutional
between public and private collaboration to pave the way social and commercial
side of this business model is needed, for instance zakat and waqf or blended
finance scheme for a more sustainable solution (OECD, 2018; Rankin et al., 2018;
Rode et al., 2019). These institutions could act as assistance for low market segment
to develop their capabilities and productivity until certain level while FinTech
reaches out to more funders or donors. Until the value chain actors gain lower
dependency and higher income, they could move to Islamic finance product for
middle/upper market segment. The institutional cooperation should have further
governance, regulatory, and operation model to ensure its implementation.
Journal of Islamic Monetary Economics and Finance, Vol. 5, Number 3, 2019 513

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