Infrastructure Financing through Islamic
Finance in the Islamic Countries
178
5.6. Capital Markets
Chapter 3 (Chart 3.7) shows that, compared to financial institutions, the capital markets are
relatively less-developed in OIC member countries (with a score of 0.33 and 0.13 respectively).
The relative size of the capital markets in general and the sukuk market, in particular, indicates
that there is potential for the use of the Islamic capital market to raise funds for infrastructure
financing. The development of the sukuk market among the countries included in this study
are varied. As Chart 5.3 shows, the sukuk market is the largest in Malaysia, followed by Saudi
Arabia, where the sovereign sukuk market dominates. While the Indonesian sukuk market is
relatively moderate, only two sukuk for infrastructure projects have been issued in Nigeria to
date. The experiences from different countries show that there is a huge demand for sukuk as
seen by their oversubscription in Nigeria and the UK. This implies that there is a great
potential to use sukuk to raise funds for infrastructure projects.
Chart 5. 3: Percentage of Global Sukuk Issuances (2017) (%)
Source: IFSB (2018)
While a developed sukuk market can be tapped into to raise funds for infrastructure projects,
Chapter 3 (Chart 3.14) shows that sukuk issuances by different infrastructure sectors (physical
infrastructure, power and utilities, transportation and telecommunications) were relatively
small (8.54% of the total) in 2017. To increase the potential of raising funds from the sukuk
market would require not only a sound legal and regulatory framework but also the institution
of supporting infrastructure and institutions. COMCEC (2018) identifies the key components of
a comprehensive framework for the development of sukuk markets as being a legal and
regulatory framework, market and infrastructure development, and diversified market players
on supply and demand sides. The recommendations on strengthening the legal and regulatory
framework are partly covered in recommendation 1.3 above.
While the recommendations for strengthening the sukuk market provided by COMCEC (2018)
applies for promoting the role of Islamic capital markets for infrastructure financing, there are
some additional steps that can be taken to enhance potential use. On the supply side, the costs
of issuance can be a hindrance to issue sukuk since sukuk structures are complex and involve
6.7%
32.9%
0.6%
38.8%
2.8%
60.6%
3.2%
0%
10%
20%
30%
40%
50%
60%
70%
Indonesia Malaysia Nigeria Saudi Arabia Sudan
Sovereign Sukuk Issuance Corporate Sukuk Issuance