Proceedings of the 12th Meeting of the COMCEC

Financial Cooperation Working Group

development bank (MDB) providing Islamic project financing. Since IDB has other mandates,

the project financing component is relatively small compared to the needs.

Knowledge Gap and Capacity Building:

Prof. Ahmed also pointed out that stakeholders lack

the knowledge and expertise on Islamic infrastructure contractual arrangements since Islamic

infrastructure investments are new and complex.

Prof. Ahmed then presented the following key policy recommendations, their rationale and the

stakeholders who could implement them.

Identify a pipeline of innovative sustainable projects that are essential for long-

term economic growth:

Prof. Ahmed explained the rationale for this

recommendation is that Infrastructure investments are large and long-term and

require appropriate forward looking planning, policies and implementation

frameworks. The recommendation should be implemented by relevant government

ministries or a specialized public body.

Develop standardized Shariah compliant contract templates for infrastructure

projects:

The rationale for the recommendation is that Shariah compliant contracts

used in infrastructure financing are complex and new to most stakeholders which

increases legal uncertainty and inhibits financing. It can be implemented by

government agencies and regulators in collaboration with the Islamic Development

Bank.

Establish a National Islamic Infrastructure Bank (NIIB):

Prof. Ahmed explained

that relative newness and smaller size of the Islamic financial sector and large

investments needed for infrastructure projects is the reason for establishing NIIB. The

government can take the initiative to establish and provide the initial equity and them

raises funds from market and other stakeholders.

Adapt Islamic banking law to establish restricted investment accounts for use in

longer-term investments:

The reasons of doing this including that deposits of banks

are short-term and liquid and infrastructure projects are long-term and illiquid and

capital adequacy requirements impose higher capital charges on long-term unsecured

investments. Relevant government ministry and bank regulators can implement this

recommendation.

Establishment of a Shariah compliant infrastructure fund:

Prof. Ahmed explained

that most Islamic banks and nonbank financial institutions are small and a specialized

fund will be able to raise resources for infrastructure investments from different

stakeholders. The government can form a GLC or the proposed NIIB can drive the

establishment and operations of the proposed fund.

Establish a GLC that can advise on the structuring and issuance of sukuk:

The

reason for this policy is that sukuk structures are complex and new to most

stakeholders which increases costs and discourage their use. Prof. Ahmed

recommended that the government or capital markets regulator can form a GLC that

will provide such services.

Develop innovative models of using zakat and waqf for providing social

infrastructure services:

Prof. Ahmed mentioned the huge potentials and untapped

Islamic social finance for this recommendation. Further, given the large investment

needs to achieve the SDGs, these sources can be tapped in to provide social