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{{infobox
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  | nameofpractice = Salam Credit
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  | location = Afghanistan
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  | imagemap = Afghanistan map.png
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  | imageflag = Afghanistan flag.png
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  | authorofpiece = James McLeod-Hatch
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'''''Original text: James McLeod-Hatch, Freelance researcher'''''
 
'''''Original text: James McLeod-Hatch, Freelance researcher'''''
  
<div class="item">The salam credit system is an informal credit system in which the repayment of cash advances towards agriculture is made in agricultural produce. This system is prevalent in the south and east of Afghanistan, and generally refers to the advance of cash for agricultural inputs, such as seeds and fertilizer, to be repaid by the debtor in raw opium paste. <br><br>During times of financial stress, a farmer will enter into a contract to provide a certain amount of opium to a creditor, usually just after the harvest (salam credit tends to be a short-term seasonal loan). The loan can be used to finance the cost of agricultural inputs for poppy cultivation, although this is not always the case – it may also be taken to service another debt, such as marriage costs (Mansfield 1999: 12)<ref>Mansfield, D. 1999a. Alternative Development: The Modern Thrust of Supply-Side Policy.  Vienna: United Nations Office on Drugs and Crime</ref>. The amount of the loan is typically 50 per cent of the value of the current price of opium. So for example, a farmer agreeing to provide 10 kilos of opium at a time when opium costs $100 a kilo will receive a $500 loan. The cash value of the loan will vary according to such factors as the proximity of the harvest (the closer to harvest, the higher the farm gate price due to falling stocks) (Anand 2004: 26), and the creditworthiness of the farmer (often opium cultivation in itself gives the farmers access to more favourable credit). Less creditworthy farmers might receive less than the typical 50 per cent, if for example they do not own any land (Mansfield 2004: 4)<ref>Mansfield, D. 2004. The Role of Opium as a Source Of Informal Credit In Rural Afghanistan. World Bank</ref>.
+
<div class="toccolours mw-collapsible mw-collapsed">
<br><br>This type of informal credit mechanism does not uniquely pertain to opium poppy cultivation: it can also (less commonly) be used for agricultural inputs towards the cultivation of livestock and fruit (Mansfield 2001: 11) <ref>Mansfield, D. 2001a. Coping Strategies, Accumulated Wealth and Shifting Markets: The Story of Opium Poppy Cultivation in Badakhshan 2000-2003. Agha Khan Development Network
+
The salam credit system is an informal credit system in which the repayment of cash advances towards agriculture is made in agricultural produce. This system is prevalent in the south and east of Afghanistan, and generally refers to the advance of cash for agricultural inputs, such as seeds and fertilizer, to be repaid by the debtor in raw opium paste.
</ref>or grains and spices (Mansfield 2004: 3)<ref>Mansfield, D. 2004. The Role of Opium as a Source Of Informal Credit In Rural Afghanistan. World Bank</ref>. However, the salam credit system is most commonly associated with the cultivation of poppy, especially as formal micro-financing strategies that (intentionally) support the cultivation of illicit crops do not exist.<br><br>The term salam (سلم) can be roughly translated as ‘delivery’, and comes from the Arabic financial concept of Bai‘ Salam (سلم بيع), ‘an ancient form of forward contract wherein the price was paid in advance at the time of making the contract for prescribed goods to be delivered later’. Its principles are laid out in the Hadith (the body of works discussing the words and actions of the Prophet Mohammad) and it appears to have originated specifically as a method for farmers to raise finance (Ayub 2009: 241)<ref>Ayub, M. 2009. Understanding Islamic Finance.  New York: John Wiley & Sons
+
 
Baderi, M. 2012. ‘As Salam Transaction in Islam’, syaria.com, 13 September,  http://syaria.com/as-salam-transaction-in-islam/</ref>. The mechanisms by which it operates, under its original design, were such that it was compliant with other Islamic financial principles, such as avoiding usury (Ayub 2009: 242)<ref>Ayub, M. 2009. Understanding Islamic Finance.  New York: John Wiley & Sons
+
During times of financial stress, a farmer will enter into a contract to provide a certain amount of opium to a creditor, usually just after the harvest (salam credit tends to be a short-term seasonal loan). The loan can be used to finance the cost of agricultural inputs for poppy cultivation, although this is not always the case – it may also be taken to service another debt, such as marriage costs (Mansfield 1999: 12)<ref>Mansfield, D. 1999a. Alternative Development: The Modern Thrust of Supply-Side Policy.  Vienna: United Nations Office on Drugs and Crime</ref>. The amount of the loan is typically 50 per cent of the value of the current price of opium. So for example, a farmer agreeing to provide 10 kilos of opium at a time when opium costs $100 a kilo will receive a $500 loan. The cash value of the loan will vary according to such factors as the proximity of the harvest (the closer to harvest, the higher the farm gate price due to falling stocks) (Anand 2004: 26)<ref>Anand, B. 2004. Replacing Narco-Usurers with Micro Lenders: The Agricultural Finance Component of Opium Substitution Programs in Afghanistan. PhD disseration, The Fletcher School, Tufts University</ref>, and the creditworthiness of the farmer (often opium cultivation in itself gives the farmers access to more favourable credit). Less creditworthy farmers might receive less than the typical 50 per cent, if for example they do not own any land (Mansfield 2004: 4)<ref>Mansfield, D. 2004. The Role of Opium as a Source Of Informal Credit In Rural Afghanistan. World Bank</ref>.
Baderi, M. 2012. ‘As Salam Transaction in Islam’, syaria.com, 13 September,  http://syaria.com/as-salam-transaction-in-islam/</ref>. <br><br>Although salam is a basic Islamic financial principle, the fact that it involves money being repaid with commodities means that it is not a suitable mechanism for formal Islamic financial institutions, such as banks, to employ. It is a more useful mechanism for traders of goods. Outside of Afghanistan, it is not commonly reported, although such a system has been described in the Sahel region of Africa (Srivastava 2013: 106)<ref>Srivastava, Y. (ed.) 2013. Advances in Food Science and Nutrition. Oba Ile, Nigeria: Science And Education Development Institute</ref>. Using opium as a form of credit is also not exclusive to Afghanistan – similar systems advancing payments against opium exist in Thailand, Pakistan, and the Lao People's Democratic Republic (Mansfield 1999: 11)<ref>Mansfield, D. 1999b. Strategic Study #3: Preliminary Report, January 1999. The Role of Opium as a source of Informal Credit. Vienna: United Nations Office on Drugs and Crime.</ref>.<br><br>In the literature on salam in the 1960s and 1970s, the practice is only referenced in relation to in extremis funding to support licit farming activities – typically, for a sharecropper to feed his family wheat during the winter (Stevens and Tarzi 1965: 63)<ref>Stevens, I. and Tarzi, K. 1965. Economics of Agricultural Production in Helmand Valley. Denver: Agency for International Development, Department of State</ref>. By the mid-1970s, the high cost of borrowing and the introduction of formal, more efficient borrowing mechanisms such as banks meant that salam credit had ‘largely been abandoned’ throughout Helmand (Farouq and Scott 1975: 61)<ref>Farouq, F. and Scott, R. 1975. Farm Economic Survey of The Helmand Valley. Kabul: USAID/DP</ref>. However, large-scale geopolitical developments, including the Soviet incursion and subsequent civil war, meant that opium became an extremely attractive crop to grow (Goodhand 2005: 191-216)<ref>Goodhand, J. 2005. “Frontiers and Wars: the Opium Economy in Afghanistan", Journal of Agrarian Change, 5 (2): 191-216</ref>. By the time the Taliban were toppled, salam credit was resurgent – and squarely associated with the opium trade (Mansfield 2001: 6)<ref>Mansfield, D. 2001b. The Economic Superiority of Illicit Drug Production: Myth and Reality.  Paper for International Conference on Alternative Development in Drug Control and Cooperation, Feldafing, 7-12 January 2002</ref>. Thus, salam credit did not emerge in Afghanistan specifically to service the opium economy: rather, it was adapted from existing agricultural financing practices. <br><br>Salam is not the only informal economic practice associated with agricultural credit in Afghanistan. There are similar mechanisms in other parts of the country, such as raf-e-zawat and pishaki in the north and north east Afghanistan. Other informal practices for raising money also exist, such as anawat (also known as jawzai in eastern Afghanistan (Mansfield 2015, personal correspondence), ’the short-selling of commodities for cash loans’ – although it too has negative associations ‘due to the punitive mark-up charged by the lender’, which could be argued as being interest and therefore un-Islamic (Mansfield 2004: 4)<ref>Mansfield, D. 2004. The Role of Opium as a Source Of Informal Credit In Rural Afghanistan. World Bank
+
 
</ref>. The preferred option to borrow cash in the first instance is always qarz-e-hasna – an interest-free loan – which usually comes from a family member (Mansfield 1999: 14)<ref>Mansfield, D. 1999a. Alternative Development: The Modern Thrust of Supply-Side Policy.  Vienna: United Nations Office on Drugs and Crime</ref>. In early 2015, salam had disappeared from many areas where it had been formerly used, due to increased liquidity in these areas allowing for qarz-e-hasna. Farmers recognise that opium is an expensive form of credit: in some areas salam has disappeared simply because poppy cultivation no longer occurs (Mansfield 2015, personal correspondence).<br><br>Due to the loan being agreed in terms of output, and not the cash sum borrowed, poor harvests can lead to indebtedness. If the amount of opium the farmer has produced is less than that required to pay off the salam credit, he may have to borrow enough through another type of loan to purchase the shortfall in opium; or he might try and parlay the shortfall to the next season, if the creditor agrees. This encourages cycles of debt, but also encourages season-on-season increases of land put under poppy cultivation, since the farmer must grow more poppy to make up the shortfall from the last season. Moreover, if the price of opium has increased in the period between the loan being taken and the repayment, the farmer will find himself even more indebted. This means that ‘the real cost of repaying the salaam initially received could be as much as six times the original loan.’ (Mansfield 1999: 15)<ref>Mansfield, D. 1999b. Strategic Study #3: Preliminary Report, January 1999. The Role of Opium as a source of Informal Credit. Vienna: United Nations Office on Drugs and Crime.</ref><br><br>The effects of a spike in opium prices were especially evident in the 2000/01 growing season, following the Taliban (then governing the country) banning poppy cultivation. Just 7,606 hectares of poppy were grown in 2001, down from 82,171 hectares in 2000 (United Nations Office on Drugs and Crime 2012: 28)<ref>United Nations Office on Drugs and Crime. 2012. World Drug Report 2012. New York: United Nations</ref>. With a markedly reduced supply, the market consequently responded with increased opium prices, which had ‘the equivalent effect of charging interest at 1,000-1,500 per cent’ (Mansfield 2001: 8)<ref>Mansfield, D. 2001b. The Economic Superiority of Illicit Drug Production: Myth and Reality.  Paper for International Conference on Alternative Development in Drug Control and Cooperation, Feldafing, 7-12 January 2002</ref>.<br><br>Currently the Government of Afghanistan does not have the writ to impose an effective ban on poppy cultivation, but there are other extreme price risks that the farmers face, for example from disease. The 2010 poppy crop was badly affected by disease; as a result, opium prices jumped from an average price of $71/kilo in July 2009 to $300/kilo in February 2011 (United Nations Office on Drugs and Crime and Islamic Republic of Afghanistan Ministry of Counter Narcotics 2013: 64)<ref>United Nations Office on Drugs and Crime and Islamic Republic of Afghanistan Ministry of Counter Narcotics. 2013. Afghanistan Opium Survey 2013</ref>. Other threats facing the farmer include drought, which would also negatively impact on opium yield, or government eradication of the farmer’s poppy crops.<br><br>The potential for a salam loan to spiral out of control is greater for more marginal farmers who are less liquid. If other loan sources have been exhausted, and the creditor will no longer let the loan ride to the next season, the farmer is forced to resort to more extreme cash-raising strategies. This might include engaging in wage labour; the sale of livestock or a vehicle; or, if the debt is larger still, the sale of land or even family members is sometimes used as a last resort to service debts – giving away young female family members in marriage as settlement (Gayan 2012: 308)<ref>Gayan, A. (ed.) 2012. Situational Analysis of Children in South Asia. South Asian Alliance of Grassroots NGOs (SAAGN)</ref>. This practice is effectively an extension of the marriage dowry system common across the subcontinent and especially in Pashtun culture. In 2008, it was reported that the incidence of these so-called ‘opium brides’ was increasing (Yosafzai 2008)<ref>Yosafzai, S. 2008.  ‘Opium Brides of Afghanistan’, newsweek.com, 29 March, http://www.newsweek.com/opium-brides-afghanistan-84509 </ref>.<br><br>Salam credit is one of the myriad complicating factors that undermines efforts by the Government of Afghanistan and the international community to encourage farmers to grow licit crops (such as the provision of formal micro-finance initiatives). Combatting it is simple in principle, but complex in practice. In simple economic terms, salam is not especially popular, and people will naturally seek cheaper and more stable debt. As in the mid-Seventies, in the past few years salam loans have become less common in Helmand, where ‘liquidity and the possibilities of getting cash loans from family members mean that few farmers stake salam’ (Mansfield 2015, personal correspondence). However, the entire matrix of factors that leads to illicit cultivation in the first place – economic necessity, instability, lack of formal alternatives, lack of infrastructure, corruption etc. – needs to be comprehensively addressed in order to permanently reduce the prevalence of salam credit. In the meantime, any formal alternatives – such as micro-finance initiatives – that are attempted must be efficiently delivered, and institutionally sound enough to withstand corruption or abuse. They must be aimed at the most economically vulnerable farmers in poppy cultivating areas, especially during times of economic stress; as these are the same conditions that favour salam credit.
+
<div class="mw-collapsible-content">
<br><br>==Notes==<br><references /><br><br>[[Category:Afghanistan]]<br><br>[[Category:Asia]]</div>
+
This type of informal credit mechanism does not uniquely pertain to opium poppy cultivation: it can also (less commonly) be used for agricultural inputs towards the cultivation of livestock and fruit (Mansfield 2001: 11)<ref>Mansfield, D. 2001a. Coping Strategies, Accumulated Wealth and Shifting Markets: The Story of Opium Poppy Cultivation in Badakhshan 2000-2003. Agha Khan Development Network</ref> or grains and spices (Mansfield 2004: 3)<ref>Mansfield, D. 2004. The Role of Opium as a Source Of Informal Credit In Rural Afghanistan. World Bank</ref>. However, the salam credit system is most commonly associated with the cultivation of poppy, especially as formal micro-financing strategies that (intentionally) support the cultivation of illicit crops do not exist.
 +
 
 +
The term salam (سلم) can be roughly translated as ‘delivery’, and comes from the Arabic financial concept of Bai‘ Salam (سلم بيع), ‘an ancient form of forward contract wherein the price was paid in advance at the time of making the contract for prescribed goods to be delivered later’. Its principles are laid out in the Hadith (the body of works discussing the words and actions of the Prophet Mohammad) and it appears to have originated specifically as a method for farmers to raise finance (Ayub 2009: 241)<ref>Ayub, M. 2009. Understanding Islamic Finance.  New York: John Wiley & Sons Baderi, M. 2012. ‘As Salam Transaction in Islam’, syaria.com, 13 September,  http://syaria.com/as-salam-transaction-in-islam/</ref>. The mechanisms by which it operates, under its original design, were such that it was compliant with other Islamic financial principles, such as avoiding usury (Ayub 2009: 242)<ref>Ayub, M. 2009. Understanding Islamic Finance.  New York: John Wiley & Sons Baderi, M. 2012. ‘As Salam Transaction in Islam’, syaria.com, 13 September,  http://syaria.com/as-salam-transaction-in-islam/</ref>.
 +
 
 +
Although salam is a basic Islamic financial principle, the fact that it involves money being repaid with commodities means that it is not a suitable mechanism for formal Islamic financial institutions, such as banks, to employ. It is a more useful mechanism for traders of goods. Outside of Afghanistan, it is not commonly reported, although such a system has been described in the Sahel region of Africa (Srivastava 2013: 106)<ref>Srivastava, Y. (ed.) 2013. Advances in Food Science and Nutrition. Oba Ile, Nigeria: Science And Education Development Institute</ref>. Using opium as a form of credit is also not exclusive to Afghanistan – similar systems advancing payments against opium exist in Thailand, Pakistan, and the Lao People's Democratic Republic (Mansfield 1999: 11)<ref>Mansfield, D. 1999b. Strategic Study #3: Preliminary Report, January 1999. The Role of Opium as a source of Informal Credit. Vienna: United Nations Office on Drugs and Crime.</ref>.
 +
 
 +
In the literature on salam in the 1960s and 1970s, the practice is only referenced in relation to in extremis funding to support licit farming activities – typically, for a sharecropper to feed his family wheat during the winter (Stevens and Tarzi 1965: 63)<ref>Stevens, I. and Tarzi, K. 1965. Economics of Agricultural Production in Helmand Valley. Denver: Agency for International Development, Department of State</ref>. By the mid-1970s, the high cost of borrowing and the introduction of formal, more efficient borrowing mechanisms such as banks meant that salam credit had ‘largely been abandoned’ throughout Helmand (Farouq and Scott 1975: 61)<ref>Farouq, F. and Scott, R. 1975. Farm Economic Survey of The Helmand Valley. Kabul: USAID/DP</ref>. However, large-scale geopolitical developments, including the Soviet incursion and subsequent civil war, meant that opium became an extremely attractive crop to grow (Goodhand 2005: 191-216)<ref>Goodhand, J. 2005. “Frontiers and Wars: the Opium Economy in Afghanistan", Journal of Agrarian Change, 5 (2): 191-216</ref>. By the time the Taliban were toppled, salam credit was resurgent – and squarely associated with the opium trade (Mansfield 2001: 6)<ref>Mansfield, D. 2001b. The Economic Superiority of Illicit Drug Production: Myth and Reality.  Paper for International Conference on Alternative Development in Drug Control and Cooperation, Feldafing, 7-12 January 2002</ref>. Thus, salam credit did not emerge in Afghanistan specifically to service the opium economy: rather, it was adapted from existing agricultural financing practices.
 +
 
 +
Salam is not the only informal economic practice associated with agricultural credit in Afghanistan. There are similar mechanisms in other parts of the country, such as raf-e-zawat and pishaki in the north and north east Afghanistan. Other informal practices for raising money also exist, such as anawat (also known as jawzai in eastern Afghanistan (Mansfield 2015, personal correspondence), ’the short-selling of commodities for cash loans’ – although it too has negative associations ‘due to the punitive mark-up charged by the lender’, which could be argued as being interest and therefore un-Islamic (Mansfield 2004: 4)<ref>Mansfield, D. 2004. The Role of Opium as a Source Of Informal Credit In Rural Afghanistan. World Bank
 +
</ref>. The preferred option to borrow cash in the first instance is always qarz-e-hasna – an interest-free loan – which usually comes from a family member (Mansfield 1999: 14)<ref>Mansfield, D. 1999a. Alternative Development: The Modern Thrust of Supply-Side Policy.  Vienna: United Nations Office on Drugs and Crime</ref>. In early 2015, salam had disappeared from many areas where it had been formerly used, due to increased liquidity in these areas allowing for qarz-e-hasna. Farmers recognise that opium is an expensive form of credit: in some areas salam has disappeared simply because poppy cultivation no longer occurs (Mansfield 2015, personal correspondence).
 +
 
 +
Due to the loan being agreed in terms of output, and not the cash sum borrowed, poor harvests can lead to indebtedness. If the amount of opium the farmer has produced is less than that required to pay off the salam credit, he may have to borrow enough through another type of loan to purchase the shortfall in opium; or he might try and parlay the shortfall to the next season, if the creditor agrees. This encourages cycles of debt, but also encourages season-on-season increases of land put under poppy cultivation, since the farmer must grow more poppy to make up the shortfall from the last season. Moreover, if the price of opium has increased in the period between the loan being taken and the repayment, the farmer will find himself even more indebted. This means that ‘the real cost of repaying the salaam initially received could be as much as six times the original loan.’ (Mansfield 1999: 15)<ref>Mansfield, D. 1999b. Strategic Study #3: Preliminary Report, January 1999. The Role of Opium as a source of Informal Credit. Vienna: United Nations Office on Drugs and Crime.</ref>
 +
 
 +
The effects of a spike in opium prices were especially evident in the 2000/01 growing season, following the Taliban (then governing the country) banning poppy cultivation. Just 7,606 hectares of poppy were grown in 2001, down from 82,171 hectares in 2000 (United Nations Office on Drugs and Crime 2012: 28)<ref>United Nations Office on Drugs and Crime. 2012. World Drug Report 2012. New York: United Nations</ref>. With a markedly reduced supply, the market consequently responded with increased opium prices, which had ‘the equivalent effect of charging interest at 1,000-1,500 per cent’ (Mansfield 2001: 8)<ref>Mansfield, D. 2001b. The Economic Superiority of Illicit Drug Production: Myth and Reality.  Paper for International Conference on Alternative Development in Drug Control and Cooperation, Feldafing, 7-12 January 2002</ref>.
 +
 
 +
Currently the Government of Afghanistan does not have the writ to impose an effective ban on poppy cultivation, but there are other extreme price risks that the farmers face, for example from disease. The 2010 poppy crop was badly affected by disease; as a result, opium prices jumped from an average price of $71/kilo in July 2009 to $300/kilo in February 2011 (United Nations Office on Drugs and Crime and Islamic Republic of Afghanistan Ministry of Counter Narcotics 2013: 64)<ref>United Nations Office on Drugs and Crime and Islamic Republic of Afghanistan Ministry of Counter Narcotics. 2013. Afghanistan Opium Survey 2013</ref>. Other threats facing the farmer include drought, which would also negatively impact on opium yield, or government eradication of the farmer’s poppy crops.
 +
 
 +
The potential for a salam loan to spiral out of control is greater for more marginal farmers who are less liquid. If other loan sources have been exhausted, and the creditor will no longer let the loan ride to the next season, the farmer is forced to resort to more extreme cash-raising strategies. This might include engaging in wage labour; the sale of livestock or a vehicle; or, if the debt is larger still, the sale of land or even family members is sometimes used as a last resort to service debts – giving away young female family members in marriage as settlement (Gayan 2012: 308)<ref>Gayan, A. (ed.) 2012. Situational Analysis of Children in South Asia. South Asian Alliance of Grassroots NGOs (SAAGN)</ref>. This practice is effectively an extension of the marriage dowry system common across the subcontinent and especially in Pashtun culture. In 2008, it was reported that the incidence of these so-called ‘opium brides’ was increasing (Yosafzai 2008)<ref>Yosafzai, S. 2008.  ‘Opium Brides of Afghanistan’, newsweek.com, 29 March, http://www.newsweek.com/opium-brides-afghanistan-84509 </ref>.
 +
 
 +
Salam credit is one of the myriad complicating factors that undermines efforts by the Government of Afghanistan and the international community to encourage farmers to grow licit crops (such as the provision of formal micro-finance initiatives). Combatting it is simple in principle, but complex in practice. In simple economic terms, salam is not especially popular, and people will naturally seek cheaper and more stable debt. As in the mid-Seventies, in the past few years salam loans have become less common in Helmand, where ‘liquidity and the possibilities of getting cash loans from family members mean that few farmers stake salam’ (Mansfield 2015, personal correspondence). However, the entire matrix of factors that leads to illicit cultivation in the first place – economic necessity, instability, lack of formal alternatives, lack of infrastructure, corruption etc. – needs to be comprehensively addressed in order to permanently reduce the prevalence of salam credit. In the meantime, any formal alternatives – such as micro-finance initiatives – that are attempted must be efficiently delivered, and institutionally sound enough to withstand corruption or abuse. They must be aimed at the most economically vulnerable farmers in poppy cultivating areas, especially during times of economic stress; as these are the same conditions that favour salam credit.
 +
</div>
 +
</div>
 +
 
 +
==Notes==
 +
<references />
 +
 
 +
[[Category:Informal Practices]]
 +
[[Category:Afghanistan]]
 +
[[Category:Asia]]
 +
[[Category:Informal welfare]]
 +
[[Category:Functional]]
 +
[[Category:Survival]]

Latest revision as of 02:39, 18 August 2016

Salam Credit
Informal practice commonly found in Afghanistan
Afghanistan map.png
Map of Afghanistan, where Salam Credit commonly takes place.
Afghanistan flag.png
Flag of Afghanistan.
Entry written by James McLeod-Hatch.

Original text: James McLeod-Hatch, Freelance researcher

The salam credit system is an informal credit system in which the repayment of cash advances towards agriculture is made in agricultural produce. This system is prevalent in the south and east of Afghanistan, and generally refers to the advance of cash for agricultural inputs, such as seeds and fertilizer, to be repaid by the debtor in raw opium paste.

During times of financial stress, a farmer will enter into a contract to provide a certain amount of opium to a creditor, usually just after the harvest (salam credit tends to be a short-term seasonal loan). The loan can be used to finance the cost of agricultural inputs for poppy cultivation, although this is not always the case – it may also be taken to service another debt, such as marriage costs (Mansfield 1999: 12)[1]. The amount of the loan is typically 50 per cent of the value of the current price of opium. So for example, a farmer agreeing to provide 10 kilos of opium at a time when opium costs $100 a kilo will receive a $500 loan. The cash value of the loan will vary according to such factors as the proximity of the harvest (the closer to harvest, the higher the farm gate price due to falling stocks) (Anand 2004: 26)[2], and the creditworthiness of the farmer (often opium cultivation in itself gives the farmers access to more favourable credit). Less creditworthy farmers might receive less than the typical 50 per cent, if for example they do not own any land (Mansfield 2004: 4)[3].

This type of informal credit mechanism does not uniquely pertain to opium poppy cultivation: it can also (less commonly) be used for agricultural inputs towards the cultivation of livestock and fruit (Mansfield 2001: 11)[4] or grains and spices (Mansfield 2004: 3)[5]. However, the salam credit system is most commonly associated with the cultivation of poppy, especially as formal micro-financing strategies that (intentionally) support the cultivation of illicit crops do not exist.

The term salam (سلم) can be roughly translated as ‘delivery’, and comes from the Arabic financial concept of Bai‘ Salam (سلم بيع), ‘an ancient form of forward contract wherein the price was paid in advance at the time of making the contract for prescribed goods to be delivered later’. Its principles are laid out in the Hadith (the body of works discussing the words and actions of the Prophet Mohammad) and it appears to have originated specifically as a method for farmers to raise finance (Ayub 2009: 241)[6]. The mechanisms by which it operates, under its original design, were such that it was compliant with other Islamic financial principles, such as avoiding usury (Ayub 2009: 242)[7].

Although salam is a basic Islamic financial principle, the fact that it involves money being repaid with commodities means that it is not a suitable mechanism for formal Islamic financial institutions, such as banks, to employ. It is a more useful mechanism for traders of goods. Outside of Afghanistan, it is not commonly reported, although such a system has been described in the Sahel region of Africa (Srivastava 2013: 106)[8]. Using opium as a form of credit is also not exclusive to Afghanistan – similar systems advancing payments against opium exist in Thailand, Pakistan, and the Lao People's Democratic Republic (Mansfield 1999: 11)[9].

In the literature on salam in the 1960s and 1970s, the practice is only referenced in relation to in extremis funding to support licit farming activities – typically, for a sharecropper to feed his family wheat during the winter (Stevens and Tarzi 1965: 63)[10]. By the mid-1970s, the high cost of borrowing and the introduction of formal, more efficient borrowing mechanisms such as banks meant that salam credit had ‘largely been abandoned’ throughout Helmand (Farouq and Scott 1975: 61)[11]. However, large-scale geopolitical developments, including the Soviet incursion and subsequent civil war, meant that opium became an extremely attractive crop to grow (Goodhand 2005: 191-216)[12]. By the time the Taliban were toppled, salam credit was resurgent – and squarely associated with the opium trade (Mansfield 2001: 6)[13]. Thus, salam credit did not emerge in Afghanistan specifically to service the opium economy: rather, it was adapted from existing agricultural financing practices.

Salam is not the only informal economic practice associated with agricultural credit in Afghanistan. There are similar mechanisms in other parts of the country, such as raf-e-zawat and pishaki in the north and north east Afghanistan. Other informal practices for raising money also exist, such as anawat (also known as jawzai in eastern Afghanistan (Mansfield 2015, personal correspondence), ’the short-selling of commodities for cash loans’ – although it too has negative associations ‘due to the punitive mark-up charged by the lender’, which could be argued as being interest and therefore un-Islamic (Mansfield 2004: 4)[14]. The preferred option to borrow cash in the first instance is always qarz-e-hasna – an interest-free loan – which usually comes from a family member (Mansfield 1999: 14)[15]. In early 2015, salam had disappeared from many areas where it had been formerly used, due to increased liquidity in these areas allowing for qarz-e-hasna. Farmers recognise that opium is an expensive form of credit: in some areas salam has disappeared simply because poppy cultivation no longer occurs (Mansfield 2015, personal correspondence).

Due to the loan being agreed in terms of output, and not the cash sum borrowed, poor harvests can lead to indebtedness. If the amount of opium the farmer has produced is less than that required to pay off the salam credit, he may have to borrow enough through another type of loan to purchase the shortfall in opium; or he might try and parlay the shortfall to the next season, if the creditor agrees. This encourages cycles of debt, but also encourages season-on-season increases of land put under poppy cultivation, since the farmer must grow more poppy to make up the shortfall from the last season. Moreover, if the price of opium has increased in the period between the loan being taken and the repayment, the farmer will find himself even more indebted. This means that ‘the real cost of repaying the salaam initially received could be as much as six times the original loan.’ (Mansfield 1999: 15)[16]

The effects of a spike in opium prices were especially evident in the 2000/01 growing season, following the Taliban (then governing the country) banning poppy cultivation. Just 7,606 hectares of poppy were grown in 2001, down from 82,171 hectares in 2000 (United Nations Office on Drugs and Crime 2012: 28)[17]. With a markedly reduced supply, the market consequently responded with increased opium prices, which had ‘the equivalent effect of charging interest at 1,000-1,500 per cent’ (Mansfield 2001: 8)[18].

Currently the Government of Afghanistan does not have the writ to impose an effective ban on poppy cultivation, but there are other extreme price risks that the farmers face, for example from disease. The 2010 poppy crop was badly affected by disease; as a result, opium prices jumped from an average price of $71/kilo in July 2009 to $300/kilo in February 2011 (United Nations Office on Drugs and Crime and Islamic Republic of Afghanistan Ministry of Counter Narcotics 2013: 64)[19]. Other threats facing the farmer include drought, which would also negatively impact on opium yield, or government eradication of the farmer’s poppy crops.

The potential for a salam loan to spiral out of control is greater for more marginal farmers who are less liquid. If other loan sources have been exhausted, and the creditor will no longer let the loan ride to the next season, the farmer is forced to resort to more extreme cash-raising strategies. This might include engaging in wage labour; the sale of livestock or a vehicle; or, if the debt is larger still, the sale of land or even family members is sometimes used as a last resort to service debts – giving away young female family members in marriage as settlement (Gayan 2012: 308)[20]. This practice is effectively an extension of the marriage dowry system common across the subcontinent and especially in Pashtun culture. In 2008, it was reported that the incidence of these so-called ‘opium brides’ was increasing (Yosafzai 2008)[21].

Salam credit is one of the myriad complicating factors that undermines efforts by the Government of Afghanistan and the international community to encourage farmers to grow licit crops (such as the provision of formal micro-finance initiatives). Combatting it is simple in principle, but complex in practice. In simple economic terms, salam is not especially popular, and people will naturally seek cheaper and more stable debt. As in the mid-Seventies, in the past few years salam loans have become less common in Helmand, where ‘liquidity and the possibilities of getting cash loans from family members mean that few farmers stake salam’ (Mansfield 2015, personal correspondence). However, the entire matrix of factors that leads to illicit cultivation in the first place – economic necessity, instability, lack of formal alternatives, lack of infrastructure, corruption etc. – needs to be comprehensively addressed in order to permanently reduce the prevalence of salam credit. In the meantime, any formal alternatives – such as micro-finance initiatives – that are attempted must be efficiently delivered, and institutionally sound enough to withstand corruption or abuse. They must be aimed at the most economically vulnerable farmers in poppy cultivating areas, especially during times of economic stress; as these are the same conditions that favour salam credit.

Notes

  1. Mansfield, D. 1999a. Alternative Development: The Modern Thrust of Supply-Side Policy. Vienna: United Nations Office on Drugs and Crime
  2. Anand, B. 2004. Replacing Narco-Usurers with Micro Lenders: The Agricultural Finance Component of Opium Substitution Programs in Afghanistan. PhD disseration, The Fletcher School, Tufts University
  3. Mansfield, D. 2004. The Role of Opium as a Source Of Informal Credit In Rural Afghanistan. World Bank
  4. Mansfield, D. 2001a. Coping Strategies, Accumulated Wealth and Shifting Markets: The Story of Opium Poppy Cultivation in Badakhshan 2000-2003. Agha Khan Development Network
  5. Mansfield, D. 2004. The Role of Opium as a Source Of Informal Credit In Rural Afghanistan. World Bank
  6. Ayub, M. 2009. Understanding Islamic Finance. New York: John Wiley & Sons Baderi, M. 2012. ‘As Salam Transaction in Islam’, syaria.com, 13 September, http://syaria.com/as-salam-transaction-in-islam/
  7. Ayub, M. 2009. Understanding Islamic Finance. New York: John Wiley & Sons Baderi, M. 2012. ‘As Salam Transaction in Islam’, syaria.com, 13 September, http://syaria.com/as-salam-transaction-in-islam/
  8. Srivastava, Y. (ed.) 2013. Advances in Food Science and Nutrition. Oba Ile, Nigeria: Science And Education Development Institute
  9. Mansfield, D. 1999b. Strategic Study #3: Preliminary Report, January 1999. The Role of Opium as a source of Informal Credit. Vienna: United Nations Office on Drugs and Crime.
  10. Stevens, I. and Tarzi, K. 1965. Economics of Agricultural Production in Helmand Valley. Denver: Agency for International Development, Department of State
  11. Farouq, F. and Scott, R. 1975. Farm Economic Survey of The Helmand Valley. Kabul: USAID/DP
  12. Goodhand, J. 2005. “Frontiers and Wars: the Opium Economy in Afghanistan", Journal of Agrarian Change, 5 (2): 191-216
  13. Mansfield, D. 2001b. The Economic Superiority of Illicit Drug Production: Myth and Reality. Paper for International Conference on Alternative Development in Drug Control and Cooperation, Feldafing, 7-12 January 2002
  14. Mansfield, D. 2004. The Role of Opium as a Source Of Informal Credit In Rural Afghanistan. World Bank
  15. Mansfield, D. 1999a. Alternative Development: The Modern Thrust of Supply-Side Policy. Vienna: United Nations Office on Drugs and Crime
  16. Mansfield, D. 1999b. Strategic Study #3: Preliminary Report, January 1999. The Role of Opium as a source of Informal Credit. Vienna: United Nations Office on Drugs and Crime.
  17. United Nations Office on Drugs and Crime. 2012. World Drug Report 2012. New York: United Nations
  18. Mansfield, D. 2001b. The Economic Superiority of Illicit Drug Production: Myth and Reality. Paper for International Conference on Alternative Development in Drug Control and Cooperation, Feldafing, 7-12 January 2002
  19. United Nations Office on Drugs and Crime and Islamic Republic of Afghanistan Ministry of Counter Narcotics. 2013. Afghanistan Opium Survey 2013
  20. Gayan, A. (ed.) 2012. Situational Analysis of Children in South Asia. South Asian Alliance of Grassroots NGOs (SAAGN)
  21. Yosafzai, S. 2008. ‘Opium Brides of Afghanistan’, newsweek.com, 29 March, http://www.newsweek.com/opium-brides-afghanistan-84509