Proceedings of the 12th Meeting of the COMCEC
Financial Cooperation Working Group
8
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 (ibahah) which states that all transactions are
permitted except what is prohibited by Shariah. Since two broad categories of prohibitions are
riba and gharar, 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), equity based (Mudarabah, Musharakah),
agency based (Wakala) 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 riba and gharar.
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 musharakah or mudarabah, the fund manager works as an agent (wakil) to manage the
infrastructure equity funds. Debt based financing can take the forms of either sale-based
financing instruments (murabahah and istisna) or debt based Sukuk. 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.