Infrastructure Financing through Islamic
Finance in the Islamic Countries
69
Islamic Development Bank is the only multilateral organization providing Shariah-compliant
infrastructure financing to its member countries. However, given the small size of the bank, the
financing provided is relatively small. The total financing of IDB in its member countries since
its inception in 1976 to June 2018 of USD 131.28 billion translates to around USD 3.127 billion
per year. With 57 member countries, this implies financing of USD 54.84 million per member
country per year. One way to enhance Shariah-compliant resource mobilization from different
international sources would be to tap into creating more Islamic infrastructure funds in which
multilateral development banks can contribute and other institutional investors are able to
invest.
The IDB launched a number of infrastructure funds with the first one IDB Infrastructure Fund
II worth USD 730 million. The IDB Infrastructure Fund II valued at USD 2 billion was launched
in 2014.21 ASMA Capital based in Bahrain was assigned to the fund. IDB also established
Islamic infrastructure funds in collaboration with Asian Development Bank which included the
USD 250 million fund initiated in 2009 with contributions from both banks (Asian
Development Bank providing USD 100 million and Islamic Development Bank providing USD
150 million). The objective of the fund was to invest in infrastructure projects in member
countries that were common to both. CIMB Standard was assigned to manage the fund.
The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), a
subsidiary of IDB, provides investment insurance for political risk for equity investments in
projects of its member countries through its Foreign Investment Insurance Policy (FIIP) for
Equity.22 The insurance can help mitigate political risks and facilitate cross-border
investments in infrastructure projects.
3.10. Islamic Financial Industry and Infrastructure Investments
To estimate the contribution of the Islamic financial sector in infrastructure development in
OIC member countries, we use the global averages of the data available from different sources.
The average of infrastructure financing for 11 OIC member countries for which data is
available in the IFSB Prudential and Structural Islamic Financial Indicators (PSIFIs) is 4.74% of
Islamic banking assets. The percentage of sukuk used for the infrastructure sector was 11.57%
(see Chart 3.14). Since there is no information on the investments of the takaful sector in
infrastructure projects, we use the global average of the insurance industry to estimate the
takaful sector’s contribution. The investment of insurance companies in the infrastructure
sector is close to 2% of their assets (EY 2015 and S&P 2014).23 Furthermore, the project
financing by IDB accounts for around USD 3.12 billion (see discussion under Chart 3.20). Given
these assumptions and the size of the different sectors of the Islamic financial sector in Chart
3.9, the estimates of the contribution of different sectors are shown in Table 3.4 below. The
Table shows that the total contribution of the Islamic financial sector in infrastructure
financing is close to USD 120 billion, with the bulk of it (USD 75.8 billion) coming from the
banking sector followed by sukuk issuance (USD 39.9 billion). Infrastructure project financing
by IDB and the takaful sector is relatively small with investments of USD 3.12 billion and USD
21
infrastructure-fund-ii
2
23 S&P (2014) estimates the global allocation of various institutional investors for infrastructure to be as follows: Foundation
3%, Private sector pension fund 3%, Private sector pension fund close to 3%, sovereign wealth funds close to 5% and
superannuation schemes close to 7%.