OVERCOMING BARRIERS TO ISLAMIC AGRICULTURAL FINANCING IN EAST JAVA: A SOFT SYSTEMS METHODOLOGY PERSPECTIVE

This study investigates the challenges and opportunities of Islamic agricultural financing in East Java, Indonesia, aiming to design a Shariah-compliant, inclusive, and sustainable financing model. The region’s agricultural sector faces significant barriers to accessing formal credit, primarily due to high collateral requirements, low financial literacy, and the mismatch between financing products and agricultural cycles. Despite the potential of Islamic finance to address these challenges, institutional fragmentation and limited coordination among stakeholders have hindered its widespread adoption. The research adopts a qualitative case study approach, applying Soft Systems Methodology (SSM) to analyze the systemic issues in agricultural financing. Key findings include the need for flexible financial products, such as Salam, Musharakah, and Murabahah, tailored to the agricultural cycle, and the importance of collaboration between Islamic banks, Baitul Mal wa Tamwil (BMT), Islamic microfinance institution, cooperatives, and government regulators. The study also highlights the critical role of financial literacy in increasing the adoption of Shariah-compliant financing products. The study’s contributions lie in its application of SSM to develop an integrated conceptual model for Shariah-compliant agricultural finance and its emphasis on stakeholder collaboration. The findings suggest that improving financial literacy, fostering collaboration, and adopting hybrid financing models are key to enhancing access to Islamic finance in the agricultural sector. Future research should explore the practical implementation of the model and its impact on financial inclusion and agricultural productivity in other regions.