Analysis of the Low Use of Salam Contracts in Agricultural Financing in Indonesian Islamic Banking

Abstract

Salam contracts are one of the Islamic financial instruments designed to support financing in the real sector, particularly agriculture. In this contract, payment is made in advance while goods are delivered at a later date, making it highly relevant for farmers who need capital before harvest time. However, despite its great theoretical potential, the implementation of salam contracts in Indonesian Islamic banking is still very low. This study aims to analyze the factors causing the minimal application of salam contracts in agricultural sector financing and the reasons for the absence of salam realization figures in the annual reports of Islamic banks. This study uses a descriptive qualitative method with a literature review approach sourced from journals indexed by Scopus, Sinta, DOAJ, and Garuda, as well as the annual reports of Islamic banks for the period 2021–2024. The results show that the low implementation of salam contracts is caused by a combination of internal factors, such as the high risk of crop failure, limited supervision of goods, and a lack of understanding among bank human resources, as well as external factors, such as the absence of crop yield guarantee institutions, low Islamic financial literacy, and the lack of clear regulatory support. Empirical data shows that only Bank Muamalat Indonesia recorded salam financing of IDR 1.32 billion in 2022, while other Islamic banks did not record any realization value. This study recommends Parallel Salam and Digital Salam innovations as well as collaboration between Islamic banks, farmer cooperatives, and zakat institutions as strategies to strengthen the implementation of salam contracts in the future.