Infrastructure Financing through Islamic
Finance in the Islamic Countries
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additional tax exemption on profits paid from sukuk issued or guaranteed by the
government.51
4.2.5. Role of Islamic Finance in Infrastructure Finance
The role of Islamic finance in providing finance for the infrastructure sector can be viewed in
terms of financial institutions and markets and modes of financing in the form of equity or
debt. Three ways in which the Islamic financial sector can provide the funds for infrastructure
development can be identified. First is the taking of direct equity stakes in infrastructure-
related projects or entities. Second, the investing of sukuk issued by infrastructure related
projects or entities. Finally, the provision of direct financing to infrastructure related projects
or entities. The role of broad types of institutions involved in providing Shariah-compliant
financing for infrastructure projects and entities in Malaysia and the instruments used is
discussed next.
4.2.5.1. Government-Linked Companies (GLCs)
A key feature of the Malaysian economy related to infrastructure development and finance is
the role of government-linked companies (GLCs) in which the government has a controlling
stake. While some GLCs are directly controlled by government agencies, others are
subsidiaries and affiliates of GLCs. GLCs are funded by the government directly and through
seven government-linked investment companies (GLICs).52 The GLCs constitute a significant
sector in the economy, accounting for around 5% of the workforce, 36% of the market
capitalization of Bursa Malaysia, and 54% of the Kula Lumpur Composite Index (Menon 2017).
While some GLCs are directly involved in the infrastructure sector, others provide funds in the
form of equity or debt and a few others provide a supporting role.
Some GLCs play an important role in the infrastructure sector with estimates of them
providing 93% of the utilities, 80% of transportation and warehousing, and more than 50% in
information communications (Menon 2017). Several infrastructure-linked GLCs have
shareholding by GLICs, thereby providing them with funds for infrastructure-related activities.
For example, Axiata Group Berhad, involved with mobile telecommunications with assets of
RM70.49 billion (in 2016), is owned by Permodalan Nasional Bhd (15.55%), Kumpulan Wang
Persaraan (2.67%) and Lembaga Tabung Haji (1.86%). Similarly, Telekom Malaysia Berhad,
dealing with fixed-line telecoms, had assets worth RM 25 billion and its shareholders include
Permodalan Nasional Bhd (20.43%) and Kumpulan Wang Persaraan (4.1%). Tenaga Nasional
Berhad is the dominant player in the electricity sector with assets worth RM 132.0 billion and
is owned by Permodalan Nasional Bhd (11.08%), Kumpulan Wang Persaraan (5.42%) and
Lembaga Tabung Haji (1.83%) (Menon 2017: 5-6).
A few GLCs were established specifically to support long-term investments in large
infrastructure projects. In 2011, the government established an Infrastructure Financing
Entity, DanaInfra Nasional Berhad, with a paid-up capital of RM10 million wholly owned by the
Ministry of Finance with the objective of separating the fund-raising function from the
51
52 The GLICs include the Employee Provident Fund (EPF), Khazanah Nasional Berhad, Kumpulan Wang Amanah Pencen
(KWAP), Lembaga Tabung Angkatan Tentera (LTAT), Lembaga Tabung Haji (LTH), Menteri Kewangan Diperbadankan
(MKD), and Permodalan Nasional Berhad (PNB).