Question

detail about the role of Islamic finance in infrastructure development....

Answer 1

Islamic finance assets represent only around 1% of the global financial market, so how can tapping into these funds help close the $452 billion annual infrastructure finance gap in emerging markets and developing economies. The present percentage may be small now, but the Islamic finance market is growing at an impressive pace and not just in Muslim majority countries. Based on estimates from a report jointly published by the Islamic development Bank and the Word Bank Group, Shari ah complaint assets have grown exponentially in the past two decades, accumulating nearly $1.9 Trillian in assets and spreading across 50 Muslim and non-Muslim countries around the world.

The potential to deploy this financial instrument for Global infrastructure development via public – private partnerships(PPPS) was the topic of discussion at a conference this week in Kuala Lumpur, Malaysia jointly sponsored by the world bank group (the finance and market and infrastructure and PPPS Global practices) and security commission, Malaysia a first collaboration between our two groups on a multiyear engagement involving Islamic Finance and Infrastructure financing. Malaysia has extensive experience in using Islamic financial instruments to support infrastructure development the data shows 61% of the Worlds infrastructure sukuk was issued out of Malaysia and the Global infrastructure investment index 2016 ranks Malaysia as the second most attractive destination for infrastructure investment in Asia, and fifth in the World.

Joined by multilateral development bank (MDP) representatives including the Islamic development bank and Asian development bank development practitioners, policy makers, regulators, as well as stakeholders involved in Islamic finance and infrastructure we discussed the policy, regulatory and institutional interventions necessary to successfully attract and expand Islamic Financing.

Currently the Islamic Finance Industry is growing at more than 15% per year. The increase is driven by the growth in Muslim population (Currently estimated at 1.6 Billion) Muslim economies and the global integration of economies. It is also worth noting that 10 of the world’s 24 rapid growth markets have large Muslim Populations. Shari ah complaint structures as dictated by Shari’s law, prohibits the trading of debt. Therefore, the use of different types of bonds (Sukuk, Islamic Certificates of Investment) allows for co-ownership of productive resources known as the underlying business activity, rather than lending and hence is profit rather than interest.

The conference in Kuala Lumpur generated some very useful advice and an exchange of ideas on how to increase the role of Islamic Finance as a reliable and sustainable source of funding for infrastructure projects in countries where it is more needed. Advise from Malaysia experience included garnering the commitment of stakeholders within Islamic capital markets “eco system”, regulators, Government, the private sector, academia, and Shari ah scholars and overtime creating a wide array of products and services that meet the need of investors.

It was clear that MDB’s have a significant role to play in mobilizing private sector capital whether conventional or through Islamic finance such as through PPPS and can help advance the use of Islamic finance by continuing to develop tools, guidelines, training, and awareness. In fact, the World Bank Group and the Islamic Development Bank are working on a report on mobilizing Islamic Finance and PPPS that will be coming out soon.