Infrastructure Financing through Islamic
Finance in the Islamic Countries
139
government has been involved in the infrastructure sector of the country, under the Vision
2030 the plans are to use the private sector to contribute to infrastructure development. Given
the financing gap for infrastructural development, Islamic finance can play an important role.
While the Islamic banking sector represents more than 50% of the overall banking assets, the
contribution to the infrastructure sector has been only 3.7%. As indicated, this can be
explained by the nature of liabilities and the capital adequacy regulatory regimes. Since Islamic
banks are relatively large in Saudi Arabia, one option of increasing investments in
infrastructure projects would be to arrange syndicated financing whereby a few banks can
contribute the funds so that the risks are spread. The case study of Madina airport in which
several banks contribute shows the way in which different parties can contribute to the
development of infrastructure projects.
The government has issued several sukuk to raise funds to cover budgetary expenses. Some
infrastructure-linked GLCs such as Saudi Electricity Company have also issued sukuk to
expand their operations. The Islamic social sector can also be revived so that they can
contribute to the provision of social infrastructure services.
Since there is a change in the funding approaches from the public sector to the private sector
under the 2013 vision, the sukuk market is expected to play a more important role in raising
funds for the infrastructure sector. However, encouraging the private sector to contribute
more to the infrastructure sector under Saudi Vision 2030 would require strengthening the
PPP regime by especially introducing a PPP-specific legislation framework in the Kingdom to
enable PPP projects to be delivered outside the existing procurement framework.
Table 4.4.4 shows the issues and the recommendations to further enhance the role of Islamic
finance in infrastructure development in Saudi Arabia.
Table 4.4. 4: Issues and Policy Recommendations: Saudi Arabia
Issues Recommendations Implemented by
Infrastructure-Related Strategies and Policies
 The government plans to increase
the role of the private sector to
develop the infrastructure sector.
The Islamic financial sector can
contribute to this effort.
 Since infrastructure projects are
complex and long term, there is a
need to provide guarantees to
project specific risks to encourage
private sector participation in
infrastructure investments.
 Develop Shariah-compliant contract
templates that can be used for different
types of PPP projects and make these
available to potential Islamic investors.
 Provide guarantees and insurances to
cover risks such as political risks and
partial credit risks in a Shariah-
compliant manner to create incentives
for the private sector to invest in
infrastructure projects.
 National Centre for
Privatization (NCP)
 Islamic financial
industry stakeholders
 Relevant public bodies
 Private sector
insurance/takaful
companies
Legal and Regulatory Regimes
 Saudi Arabia does not have specific
Islamic financial laws. Islamic
banking operates under a
traditional banking law, the takaful
sector operates under cooperative
insurance law and the Capital
Markets Law does not have any
specific mention of sukuk.
 Enact Islamic financial (banking, takaful
and capital markets) laws to provide a
sound legal and regulatory basis for the
development of the Islamic financial
industry.
 Relevant government
ministries