Proceedings of the 12th Meeting of the COMCEC
Financial Cooperation Working Group
9
Question(s) and Comment(s)
Question: Can you please explain further on the methodology used for the report in particular
related to content analysis?
Answer: Prof. AHMED explained that the study employed triangulation method which entails
using various methods of collecting and analyzing data/information. Specifically, both
quantitative and qualitative data were collected from different sources and analysed. The
content analysis was applied to qualitative research whereby the various documents were
scanned to extract relevant information.
Question: Can you explain why the funding gaps for different regions and OIC member
countries are so large?
Answer: Prof. AHMED explained that the gaps depend on the differences in supply and
demand. Since the status of infrastructure in the most OIC member countries is not good, the
implication is that there is a need to make huge investments in the sector. The supply of funds
has traditionally come from the government. However, with budget deficits, increasing debt
levels and other commitments the governments have limitations to meet these demands.
Hence, the gaps in funding arise and the non-public sector can play an important role to fill this
gap.
Question: What is the difference between the debt and equity in Islamic finance in relation of
infrastructure financing?
Answer: Prof. AHMED clarified that some instruments in Islamic finance create debt and other
instruments take the form of equity. For example, sale based contracts such as murabahah and
istisna used in infrastructure would be debt based contracts and mudarabah and musharakah
would be equity based contracts. One difference between the two is the risk that provider of
funds face. While in debt based contracts the key risk is credit risk, in equity based contracts
the investors take the risk of performance of the project.
Question: The prices of Islamic financial products are usually more expensive than
conventional finance. Should the regulators try to reduce the price of Islamic financial
products?
Answer: Prof. AHMED explained that while it is true that Islamic financial products are more
expensive compared to their conventional counterparts, this may be due to the smaller size of
the Islamic financial institutions. When the Islamic financial sector would become large, it is
expected that their prices will be closer to the conventional financial institutions. It may be
difficult for regulators to dictate prices of products since these are determined in the market.
Comment: The conventional bonds market in countries such as US has grown and become
large mainly due to the existence of ratings on the offerings. There is a need to have good
ratings for Islamic financial instruments for them to grow.
Answer: Prof. AHMED acknowledged that ratings are important part of development of capital
markets. However, in most developing countries the capital markets are underdeveloped
partly due to their developing economies. As economies develop, the capital markets are
expected to become mature and larger. In Islamic banking most of the growth has come from
the banking side. There is also need to increase the share of Islamic capital markets to increase
the contribution of the industry in infrastructure financing.
Question: Can you explain the concepts of takaful and sukuk?