Challenges in Infrastructure Financing Through Sukuk Issuance

Rami Abdelkafi () and Houssem Bedoui
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Rami Abdelkafi: The Islamic Research and Teaching Institute (IRTI)

No 2016-3, Policy Papers from The Islamic Research and Teaching Institute (IRTI)

Abstract: With the adoption of the new development agenda, the global economy is facing great challenges to finance the existing infrastructure gap, especially in developing countries. The private sector should play a more active role to complement the public sector efforts to finance infrastructure investments. Sukuk issuance has recently been considered as one of the potential solutions to mobilize financial resources from the private sector and to incentivize the private capital to invest in public infrastructure development. Nevertheless, the existing evidence shows that to date only a few countries have been able to develop their Sukuk markets. Furthermore, the development of the sovereign Sukuk market has been always contingent on the financial situation of the originator, for example, the government. The main purpose of this paper is to show the reasons behind the underdevelopment of Sukuk in financing infrastructure projects. The paper focuses on the main challenges that developing countries may face while issuing Sukuk to develop infrastructure projects. Although different from conventional instruments, most of the Sukuk structured and issued in the current market may have the same impacts on the economy as conventional bonds. Structuring Sukuk as it is theoretically designed would be a very challenging task for developing countries. The existing evidence shows that developing economies should prepare the ground for Sukuk issuance and for the implementation of infrastructure projects to attract private capital. First, being very complex in nature, these infrastructure projects require important efforts to cover all technical aspects characterizing all phases of the implementation. Second, as a form of Public Private Partnership (PPP), Sukuk issuance would go through the same process that a country needs to introduce this project financing mechanism. Finally, Sukuk issuance requires the establishment of a legal and regulatory framework adapted to Islamic Finance principles.

Keywords: Sukuk; infrastructure financing; SDGs; public debt; PPP (search for similar items in EconPapers)
Pages: 23 pages
Date: 2016-11-05
New Economics Papers: this item is included in nep-ppm and nep-tre
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Persistent link: https://EconPapers.repec.org/RePEc:ris:irtipp:2016_003

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