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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.