Land Tenure Issues have Strategies for Success. One is Musharakah

 

A number of my clients and friends have been dealing with land tenure issues. Some are having a problem affording land in trying to find any land within a reasonable cost and distance to their market. Others I'm working with have land and are trying to find ways to make it available to Young farmers and people willing to invest in an agrarian lifestyle. Bob Walser, a friend and client near Northfield, told me about the Islamic form of financing called Musharakah. Explained below from the website of AlBaraka, it's the relationship between bank or investors and the land manager, eventually the owner. Returns to the investors are based on the revenue and profit generated by the farm. Losses are prorated under the agreement.

From what I understand, the land partner can anytime exercise the right to purchase the land at its market rate. As market rates fluctuate, the land partner my choose to buyout the bank options at a low point. I'm sure there's more to this

There must be many creative ways of financing and reducing the risk on both parties, such as farm share, a similar arrangement where many investors buy shares with benefits from the farm. I'll try to find out more about that.

Musharakah

Musharaka is an Islamic mode of financing in the form of a partnership between the bank and its client whereby each party contributes to the capital of the partnership in equal or varying degrees either to establish a new project or share in an existing project.
The accruing profit is divided between the partners pre-agreed formula, while losses are shared on pro rata basis.
The word Musharakah is derived from the Arabic word Sharikah meaning partnership. Islamic jurists point out that the legality and permissibility of Musharakah is based on the injunctions of the Qur'an, Sunnah, and Ijma (consensus) of the scholars. It may be noted that Shirkah in the Islamic Fiqh is divided into two kinds:

• Shirkat – ul – Milk, defined as joint ownership of this or more person in a property.
• Shirkat – ul – Aqd, defined as partnership effected by a mutual contract. Shirkat – ul – Aqd is also divided into three kinds: Shirkat – ul – Amwal, Shirkat – ul – Amal and Shirtal – ul – Wujoot.

Constant and Diminishing Musharakah:
Musharakah agreement may be entered into for a short-term or long-term period. The capital contributed by the bank in a Musharaka may remain constant throughout the contracted period.
This is referred to as constant Musharakah. Otherwise the bank gradually transfers its share in the Musharaka to the Musharik so as to decrease its share in order to transfer the ownership of the venture to the other party. This is a diminishing Musharakah.
Profits are shared in accordance with the Musharakah agreement. Losses are normally shared in proportion to the capital contributed by each Musharik.   
Ref: AlBaraka