Financial Guarantee as an Innovation Tool in Islamic Project Finance

Kabir Hassan () and Issouf Soumaré ()
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Kabir Hassan: University of New Orleans,Department of Economics and Finance
Issouf Soumaré: Department of Finance & Insurance, Faculty of Business Administration, Laval University

No 713, Working Papers from Economic Research Forum

Abstract: This paper proposes a model to study the arrangement of Islamic project finance with the participation of the government as a provider of loan guarantees. The owner-shareholders (musharaka certificate holders) initiate a project and raise funds by issuing Islamic profit-loss sharing mudaraba certificates. The government intervenes in providing financial guarantees in order to enhance the creditworthiness and increase the mudaraba capital capacity of the project. Our work raises several policy implications related to the structuring of Islamic project finance and the participation of both government and multilateral public agencies such as the Islamic Development Bank. It provides a unifying framework for the improvement of access to funds for Islamic projects and gives a rationale for government intervention in the arrangement of these projects.

Pages: 37
Date: 2007-01-01, Revised 2007-01-01
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Published by The Economic Research Forum (ERF)

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