Infrastructure Financing through Islamic
Finance in the Islamic Countries
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investments, infrastructure projects are prone to government interference and corruption that
can increase political risks. The absence of policies makes it difficult to create an enabling
environment, build pipelines of sustainable and viable infrastructure projects, and increase the
transactions and development costs that create disincentives for private sector investments. A
key hurdle that can constrain the participation of the private sector is the limited information
on infrastructure projects that lead investors to think that projects entail high risks. There is
thus a need to provide high quality information on infrastructure projects and identify the
features and risks involved in preferably standardized formats (Jobst 2018).
There is a lack of a list of bankable pipelines of infrastructure projects in many countries which
makes it difficult to estimate demand and needs. While institutional investors are willing to
invest in infrastructure projects, there may be a lack of well-structured long-term projects
(FSB 2014). The problem is not limited to developing countries as only half of the G-20
countries publish infrastructure pipelines (McKinsey 2016: 3). Since infrastructure has to
adjust to the changing needs of an economy, there is a need to have a forward looking
infrastructure plan outlining investment needs and outlays.
A key issue of infrastructure development in the SDGs era is integrating sustainability in all
projects. Sustainable infrastructure must consider triple-bottom line economic/financial,
environment and social objectives when considering any future projects (World Bank
2008:21). In this regard, the International Federation of Consulting Engineers provides a list of
standards and guidelines that can be used for implementing sustainable infrastructure.6
2.4.2. Legal and Regulatory Framework
Being long-term investments, there is a need for legal and regulatory certainty to reduce risks.
In many countries, a coherent and predictable legal framework for infrastructure investments
is lacking. Furthermore, with the implementation of Basel III standards in the post crisis
period, the regulatory regimes will potentially create disincentives to investments in long-term
projects as these will require higher capital charges.
The legal/regulatory framework for PPP in specific countries depends on a variety of factors
including the legal system in place. PPP can be organized under either stand-alone PPP laws or
regulations or be structured under general procurement laws or regulations. While civil law
regimes have codified laws and regulations, common law countries depend more on judicial
rulings, legal precedents and the contracts themselves (World Bank 2018f). As such, it is less
likely for the latter jurisdictions to have stand-alone laws related to PPP. World Bank and
PPIAF (2017) identify the following legal framework to support infrastructure financing by the
private sector.
PPP or Concession Laws: Laws that outline the rules and procedures governing PPP or
concession contracts by outlining relevant issues such as the duration, extension and
termination of the contract, acquisition of rights of the PPP project, security interests,
operation of the project, takeover by the contracting authority, dispute settlement and the
governing law.
Sectorial Laws and Regulations: Each sector would have specific laws that define the role and
responsibilities of different stakeholders and govern the activities carried out by them. For
example, for water resources, a specific law/regulation would create a regulatory body under
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