Risk Management in Transport PPP Projects
In the Islamic Countries
63
These institutions have accumulated significant liquidity, while the capital markets became
more liquid, thanks to high oil prices and the accommodative monetary policies in Europe and
the US (The Economist Intelligence Unit, 2013). Consequently, Islamic financial institutions have
looked in recent years for quality projects to invest in.
At the same time, a huge need of investment in infrastructure assets (see above The challenge of
infrastructure needs) is particularly pressing for emerging economies and developing countries,
having a young and growing population that will further exacerbate the infrastructure gaps.
These economies include many OIC Member Countries. Altogether, growing Islamic finance and
the need for better transport connections creates the conditions for the Islamic financial market
as an increasingly relevant method for financing infrastructure PPP projects.
Islamic finance is regarded as a highly flexible tool which can be used in combination with
conventional finance and the scope of using Islamic finance is not restricted to the OIC
geography. This is partly because most of the issues related to good practice in risk management
are not directly affected by the use of Islamic finance, i.e. the key transport PPP
technical/economic risks and mitigation strategies remain the same whether or not Islamic
finance is employed as part of the funding package.
In addition, as already observed in Chapter 3 Islamic finance is broadly aligned with the project
finance approach (Islamic finance investors look for asset-backed opportunities), which makes
it in principle suitable for PPP transactions, particularly those which operate through the
establishment of a special purpose vehicle (SPV). Thus, even in the absence of significant
changes in the overall PPP risk profile, where Islamic finance is involved it could be argued that
the willingness of Islamic finance investors to accept project-related risks may contribute to
mitigate and/or improve the management of the intrinsic conflict of interest between SPV
shareholders and creditors/senior investors in PPPs.
Details of how Islamic finance should be structured and how it can be successfully combined
with other types of finance are relatively technical and widely discussed in the specialized
literature, thus they will be not be covered in this section, while some illustrations will be briefly
discussed in Chapter 5 in the context of the country case studies18.
4.2.2. Practical Risk Mitigating Strategies
Identification and discussion of relevant practices in the remaining of this chapter will be
presented in line with the phases of the project life-cycle adopted in the conceptual framework,
and is intended to be more illustrative than exhaustive. Against this backdrop, it is also worth
underlining that:
18 The professional literature on Islamic Finance is extensive, for recent summaries of its potential in PPPs
covering specifically the OIC geography see COMCEC Coordination Office (2019) “Infrastructure Financing
through Islamic Finance in the Islamic Countries”, Ankara. See also parts of EBRD (2018) “2017-18 Public-
Private Partnership Assessment”, London, EBRD, and OECD (2015?) “Public-Private Partnerships in the
Middle East and North Africa. A Handbook for Policy Makers”, Paris, OECD.