Proceedings of the 12th Meeting of the COMCEC
Financial Cooperation Working Group
35
Annex 4: Policy Recommendations
POLICY RECOMMENDATIONS OF THE 12TH MEETING OF
THE COMCEC FINANCIAL COOPERATION WORKING GROUP
The COMCEC Financial Cooperation Working Group (FCWG) has successfully held its 12th Meeting
on March 28tt, 2019, in Ankara, Turkey with the theme of “ Infrastructure Financing through Islamic
Finance in the OIC Member Countries”. During the Meeting, FCWG made deliberations on
infrastructure financing through Islamic finance in the member countries. Accordingly, the
participants have come up with some policy recommendations.
Policy Recommendation 1: Developing Legal and Regulatory Framework to Provide an
Enabling Environment for Realizing Large Infrastructure Investments through Islamic
Finance.
Rationale: Infrastructure projects are large and complex with long maturity periods. There is a
need to mitigate the legal and regulatory risks arising from investments in these projects for
encouraging the financial sector to invest in the infrastructure sector. This can be done by
providing a sound PPP legal framework that would outline the key principles on how the
infrastructure projects are procured and implemented. Given the uniqueness of various
infrastructure sectors, sector-specific laws (e.g., energy, airports, railways, etc.) may be needed to
cater to their individual features. Furthermore, financial laws and regulations for different Islamic
financial sectors (i.e., banking, non-banking, and capital markets) are needed to provide an enabling
environment for Islamic finance to grow and contribute to infrastructure development. Finally, the
tax laws need to be adjusted to level the playing field of Islamic finance and conventional finance,
where appropriate.
Policy Recommendation 2: Increasing the Number and Share of Islamic Nonbank Financial
Institutions to Enhance the Contribution of Islamic Finance in Infrastructure Investments.
Rationale: The balance sheet features of nonbank financial institutions (constituting takaful
operators, investment banks, pension funds, etc.) are more suitable for financing long-term
infrastructure projects. However, Islamic nonbank financial institutions are relatively small and not
contributing much to the investments in the infrastructure sector. There is a need to establish more
Islamic nonbank financial institutions and increase their share in the overall nonbanking sector. In
particular, enhancing the shares of Shariah compliant pension funds and sovereign wealth funds
has the potential of increasing the size of contribution of infrastructure financing by the Islamic
financial sector.
Policy Recommendation 3: Developing the Islamic Capital Markets Infrastructure to Facilitate
the Issuance of Different Types of Project Sukuk and other Instruments as Appropriate for
Infrastructure Projects.
Rationale: Capital markets facilitate raising funds for infrastructure projects from various types of
investors. The investors can range from large institutional investors, to nonbank financial
institutions and retail investors. Furthermore, financial institutions, such as Islamic banks, prefer to
invest in tradable project sukuk rather than financing in infrastructure projects directly since they
are illiquid. To encourage the development of Islamic capital markets and increase its role in
infrastructure development would require a sound and enabling legal and regulatory framework
for sukuk issuance. In addition, since project sukuk structures are complex, provision of templates
for various types of sukuk can further increase their issuances.