Previous Page  12 / 41 Next Page
Show Menu
Previous Page 12 / 41 Next Page
Page Background

Proceedings of the 12th Meeting of the COMCEC

Financial Cooperation Working Group


regions of the world. He then showed the projected infrastructure spending requirements of

different regions over the period 2016-2040. The results for 13 OIC member countries show

that over the period, these countries will need USD 7.2 trillion for investments in the

infrastructure sector and would have a gap of USD 1.6 trillion. These figures translates to total

investment needs per member country per year of USD 22.1 billion and an investment gap per

country per year USD 4.9 billion.

Next, Prof. AHMED showed the infrastructure gap of the individual OIC member countries both

in terms of amount and percentage of GDP for the period 2016-2040. He also presented the

figures of total infrastructure investments and the contribution of the private sector for a set of

countries during 2011-2015. The figures indicated that the needs and gaps for infrastructure

investments vary significantly across countries.

In the third part of presentation, Prof. AHMED began by affirming that the basic principle of

Islamic commercial law is permissibility (


) which states that all transactions are

permitted except what is prohibited by Shariah. Since two broad categories of prohibitions are




contracts that avoid these would be considered Shariah compliant. He

identified the key contracts that are used in Islamic finance which can be debt based


Murabahah, Istisna, Salam

), asset based (

Ijarah), e

quity based (

Mudarabah, Musharakah


agency based (


and interest free loans (

qard hassan

) or loans at service charges. Prof.

AHMED then discussed Islamic perspectives of infrastructure financing by referring to AAOIFI

Standard Number 22 which permits use of concessions as long as the contracts do not

contradict the rules and principles of Shariah such as





Prof. AHMED discussed how equity, debt and hybrid contracts in Islamic finance would be

used for financing infrastructure projects. While equity provided by sponsors can take the

form of




the fund manager works as an agent (


) to manage the

infrastructure equity funds. Debt based financing can take the forms of either sale-based

financing instruments (




) or debt based


Although certain features

such as convertibility of debt to equity are allowed by Shariah, other structures such as

preferred shares are not permissible. Furthermore, structures combining various contracts

such as

istisna-ijarah, wakala-ijarah

, etc. can be used. Prof. AHMED then presented a case-

study showing how Islamic banks used syndicated financing to provide USD 50 million tranche

in a USD 100 million investment for installing wind turbines to generate electricity in Pakistan.

After presenting the status of the overall financial sectors in OIC member countries relatively

to other income groupings, Prof. AHMED showed the relative sizes of different Islamic financial

sectors globally. With the total Islamic financial assets valued at USD 2.2 trillion, Islamic

banking dominates the sector with 72.6% of the assets. The other sectors are relatively small

with sukuk constituting 15.7%, other financial institutions 5.7%, Islamic funds 4.1% and

takaful 1.9% of the assets. He further disclosed that 11.57% of the sukuk were issued by the

infrastructure sector and investment by takaful industry in the infrastructure projects in the

GCC was nil. While Islamic Development Bank (IDB) is the only Shariah compliant multilateral

bank providing project financing, its contribution was relatively small with USD 54.84 million

per member country per year.

Prof. AHMED concluded the presentation by showing the estimates of contribution of different

Islamic financial sectors in infrastructure projects. The total estimated investments in

infrastructure by Islamic finance was estimated to be USD 119.7 billion in 2017-2018 with

Islamic banking contributing USD 75.8 billion, sukuk USD 39.9 billion, IDB USD 3.12 billion and

the takaful sector providing USD 0.9 billion only. These figures indicate that the average

contribution of Islamic finance investments per member country was USD 2.1 billion.