Infrastructure Financing through Islamic
Finance in the Islamic Countries
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6 Summary of the Findings and Conclusion
Most of the infrastructure projects are bulky, complex, have long-lives and require large
amounts of investments with long-term maturities. The nature of the projects introduces
different types of risks that can inhibit investments from the private sector. Given these
features, the infrastructure sector necessitates long-term planning and the creation of a
supporting environment that can create incentives for the private sector to invest. The private
sector participates in infrastructure projects under the public-private partnership (PPP)
framework and a concession arrangement. After reviewing the relevant literature and
examining case studies from six countries, this report identifies various policies that can be
undertaken to enhance the role of Islamic finance in promoting infrastructure development.
This chapter presents the important issues arising in different aspects of infrastructure
financing and highlights the key policies that can enhance the role of Islamic finance in
promoting sustainable infrastructure development in OIC member countries.
6.1. Issues and Policies at the National Level
Most of the OIC countries have deficits in the stock of infrastructure and require investments
in different infrastructure sectors. Since the gaps of infrastructure are enormous and require
large amounts of investments, long-term strategies and medium and short-term plans are
needed to identify the projects that will be implemented. In this regard, a pipeline of projects
that are essential for the long-term economic growth of the economy needs to be identified by
a government agency or public body. Moving forward, there is a need to also explore newer
technologies that can be used to implement sustainable infrastructure projects that satisfy
economic, environmental and social objectives.
Since infrastructure projects are large and complex, the PPP framework needs to be well
structured and implemented. Other than having a separate government entity that deals with
PPP arrangements, some further supporting services could reduce uncertainties and
encourage private sector participation in developing infrastructure projects. These can include
a public body providing advisory services on PPP implementation ex-ante and providing
guarantees of execution of the PPP terms by the government after the contract is signed.
The long-term nature of infrastructure financing would also require a sound and predictable
legal system that can support long-term and complex contracts. While this can be done by
having an enabling concession, PPP and sector-specific laws and regulations, the public
procurement regime framework should also be open, transparent and competitive.
Furthermore, there has to be an enabling legal and regulatory environment for different
Islamic finance sectors. This would require supportive financial laws for Islamic banks,
nonbank financial institutions and capital market instruments, including sukuk, and also the
changing of the tax regime to one that levels the playing field for Islamic finance. The report
suggests that developing a standardized Shariah-compliant contract format that can be used in
different PPP projects would be helpful in promoting the involvement of Islamic finance in
infrastructure investments since this will be able to reduce contractual costs and legal risks.
The bulk of the infrastructure investments are still carried out by the government. Although
government budgets allocate funds for projects, in some countries government linked
companies (GLCs) are established to develop and operate different infrastructure assets. The
GLCs provide infrastructure services such as electricity and telecommunications in an