Infrastructure Financing through Islamic
Finance in the Islamic Countries
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law provided a framework for regulating the Saudi Arabian banking system, it does not
explicitly mention anything related to Islamic banking. This banking law recognizes SAMA as
the regulator of banks with the goal of safeguarding the banking system. SAMA also regulates
the insurance sector in Saudi Arabia under the Law on the Supervision of Cooperative
Insurance Companies (LSCIC 2003) that was approved by Royal Decree no. M/32 dated
01/08/2003. Art 1 of LSCIC states that insurance service offerings should be in accordance
with Islamic law.
The Capital Markets Law was established by Royal Decree No. M/30 dated 2/6/1424H /
31/7/2003. This law establishes the Capital Market Authority (CMA) as the sole regulatory and
supervisory body of the capital markets in Saudi Arabia. The CMA deals with “the organisation
of financial, legal, and administrative independence and reports directly to the president of the
Council of Ministers”. The Saudi Arabian Stock Exchange (Tadawul) was also re-organized in
light of the Capital Markets Law. The exchange was set up as a joint stock company, the shares
of which are wholly owned by the Saudi government through its investment arm, the Public
Investment Fund (PIF). Sukuk is regulated and governed by CMA under the ‘Offers of Securities
Regulations’, which is a general code with no specific mention of Shariah-compliance. The
regulatory guidelines cover the procedures for issuing securities and do not deal with their
form and type. Thus, sukuk and bonds are regulated by the CMA using the same rules and
principles.
4.4.5. The Role of Islamic Finance in Infrastructure Finance
The role of Islamic finance in the development of the infrastructure sector can be viewed in
terms of how the public and private sector raises funds from Islamic financial institutions and
capital markets to finance infrastructure related projects. After presenting how the
government and government-linked companies in Saudi Arabia have raised funds from the
Islamic financial sectors, the role of Islamic financial institutions, capital markets and
international sources in financing infrastructure are examined.
4.4.5.1. Government and Government-Linked Companies
As indicated, the government plays a key role in the development of infrastructure in Saudi
Arabia through budgetary allocation. The allocation of the budget and expenditures for the
year 2017 is shown in Chart 4.4.7. As can be seen, the budget covers economic and social
infrastructure including the education, health and transportation sectors. Since almost 85-90%
of the budget of the country is financed by oil revenues, 65 the government faces budget deficits
when oil prices are low. When the oil prices declined starting in 2015, the Saudi government
used funds from the reserves and also issued local and international debt instruments raising
approximately SAR 200.1 billion in 2016 (Budget KSA, 2017).
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