Proceedings of the 12th Meeting of the COMCEC
Financial Cooperation Working Group
6
aspect relates to how the private party is paid in terms of fees/tariffs from service users or
government or from both.
Although various types of PPP contracts can be structured depending on the functions that the
private sector performs, Prof. AHMED asserted that the focus on the research report was on
the ‘finance’ component. He then identified different sources of financing that can be broadly
classified into dimensions of domestic/international and public/private. Other than
categorizing sources of financing as domestic-public, domestic-private, international-public,
and international-private, he also identified public-private partnerships and blended finance
that mixes various types of financing. Prof. AHMED indicated that the bulk of the infrastructure
funding (close to 60%) comes from government and the private sector contributes around
23%, followed by national development banks (10%) and overseas sources (6%). The
objective of the research was to focus on expanding the private sector component of
infrastructure financing by using Islamic finance.
Prof. AHMED showed that total assets under management by different institutional investors
globally was valued at USD 200 trillion in 2016. Banks held almost one-third (33.5%) of the
global financial assets followed by investment companies that held 24.2% of the assets. Asset
holdings of other institutional investors include insurance companies & private pensions
(22.1%), public pensions and superannuation plans (9.1%), sovereign wealth funds (5.3%),
infrastructure operators and developers (2.8%), infrastructure & private equity funds (2.3%)
and endowments and foundations (0.8%). He then presented the investment horizon and risk
appetite of different financial institutions as shown in the table below:
Institution Investment Horizon Risk Appetite
Commercial Banks Short term Low to medium
Nonlife insurance Short term Medium
Investment Company Short to medium term Depends on funds mandates
Life insurance and private
pension
Long term Medium
Public pension Long term Medium
Sovereign wealth funds Long term Medium to high
Endowments and foundations Long term High
Prof. AHMED asserted that although a significant percentage of the financial assets are held by
banks and investment companies, their contribution to infrastructure sector could be limited
due to their investment horizon and risk appetite. He continued that given the investment
horizon and risk appetite, the financial institutions that are most suitable to invest in
infrastructure projects would be life insurance and private pensions, public pensions,
sovereign wealth funds and endowments and foundations. Data from infrastructure
investment show that the bulk of global investments in infrastructure comes from corporates
(50%) followed by infrastructure funds and investment firms (32%) and pension funds and
sovereign wealth funds contributing 5% each.
Next, Prof. AHMED identified five factors that affect the private financing of infrastructure
projects which are listed below.