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Proceedings of the 12th Meeting of the COMCEC

Financial Cooperation Working Group

23

8.2 Private Sector Perspective on Infrastructure Financing through

Islamic Finance

Mr. Ragıp Ali KILINC, Head of Project and Structured Finance of Kuveyt Turk Katılım Bankası

A.Ş., made a presentation on the private sector perspective on infrastructure financing through

Islamic finance. He commenced his presentation from the synopsis of Kuveyt Turk.

Mr. KILINC summarized three different examples of infrastructure financing that they

participated. After this brief overview, he addressed the difficulties encountered under four

main headings such as “Limited Islamic Financing Products”, “Limited Time Span for Financial

Close”, “Financial Risks” and “Legal and Regulatory Framework”.

Mr. KILINC explained the limitation of Islamic finance product for financing the infrastructure

projects. He stated that there are only three products (Tawarruk, Ijaraj, Parallel Istisna) they

can use to finance the infrastructure projects, however, those products also have different

challenges in themselves. For example, Ijarah has hesitation over pari passu sharing of

securities. When you consider to use Parallel Istisna, you have to be involved in financing with

a fixed rate. Tawarruk or Commodity Murabaha is not a highly preferred product in Kuveyt

Turk because of resemblance to conventional banking.

Secondly, Mr. KILINC informed the participants that all PPP Projects’ financial closure has to be

completed within a very short period which tights their internal evaluation timeline. He also

said that determining a project and allocating the credit line requires some times for need of

financial and legal due diligence and receiving Board of Directors approval due to facility lines.

However, most of the project has to be closed financially within a few months.

Mr. KILINC underlined that as another challenge, which is related to financial risks, exposure

to currency risk is one of the most critical features of infrastructure financing. However, there

are ways to minimize this currency risk by hedging mechanism. Mr. KILINC stated that a

solution for this issue is enhancing the capacity of capital markets to supply long term debt

capital in form infrastructure Sukuk which is critical for the financing of infrastructure projects

with long term assets.