Infrastructure Financing through Islamic
Finance in the Islamic Countries
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economies, however, the share of certain infrastructure sectors such as transport, energy and
telecommunications would increase (World Bank 1994: 2-3).
2.3. Sources of Infrastructure Finance
The sources of infrastructure finance are broadly classified into two dimensions:
domestic/international and public/private. The stakeholders in each of the broad categories of
infrastructure financing sources are shown in Figure 2.3 and discussed below.
Domestic-public Finance: The domestic public sources for infrastructure financing includes
government budgetary sources such as revenue in terms of taxes, duties and public borrowing.
Further funds collected from natural resource concessions and user fees of certain
infrastructure facilities can also be used to finance infrastructure projects.
Domestic-private Finance: This source of funds is provided by the financial sector which
constitutes financial intermediaries and financial markets. The former have different financial
institutions such as banks, insurance companies, pension funds, sovereign wealth funds, and
other financial institutions (such as investment companies, private-equity funds, development
banks and infrastructure developers and institutions). The financial institutions can provide
funds in the form of loans or direct investments. For larger projects, a group of financial
institutions can provide funding in the form of syndicated loans. In financial markets, the
bonds and other financial instruments can be used to raise funds for financing infrastructure
projects. The non-profit sector can also contribute to social infrastructure development.
International-public Finance: This source of infrastructure finance can come from other
national bodies or from multi-national organizations. While the former would include
financing provided by official development assistance and sovereign wealth funds, the latter
would be investments made by multilateral development banks and specialized funds such as
Climate Finance.
International-private Finance: The sources of funds under this category include private
sector entities that invest in overseas projects. Other than investments made by large
international banks, infrastructure can be financed by foreign direct investment carried out by
large corporations and infrastructure and pension funds. At the retail level, remittance can
form a large source of funds for infrastructure projects in some countries.
Public-Private Partnerships (PPP): The government can engage the private sector in
infrastructure projects through PPPs. Under PPP, the ownership of a public asset is
temporarily transferred to the private sector through a concession arrangement. The
concession agreement determines the roles of the public and private sectors under PPP and
identifies the ownership and the control rights of the projects of the parties during the
concession period (Lienert 2009).
Blended Finance: In blended finance, any combination of the four categories identified above
can be used to finance infrastructure projects. For example, multilateral organizations can
partner with domestic private sector players to develop infrastructure projects.
While there are a variety of PPP models suited to the local political, economic and legal
environments, some common elements are necessary for an efficient and effective PPP
framework. Jomo et. al (2016) identify the necessary elements of an enabling PPP framework
to be project selection and implementation (using credible cost-benefit analysis); contracts to
prices and transfer risks (for optimum risk allocation); fiscal accounting and reporting
standards (to provide transparency on fiscal implications); and legal, regulatory and