Speeches & Transcripts

Islamic Finance and Public-Private Partnerships for Infrastructure Development

May 8, 2017

Laurence Carter, Senior Director, World Bank Group Welcome Remarks, May 8, 2017, 9 am Kuala Lumpur, Malaysia


Distinguished guests, ladies and gentlemen: assalāmu ʿalaykum, good morning, and welcome!

Let me start by extending my gratitude to Tan Sri Dato’ Seri Ranjit Ajit Singh, Chairman of Securities Commission Malaysia, for hosting us. And also for the Commission’s partnership and collaboration to make this conference a reality. Thank you for hosting us in your beautiful country.

On behalf of the World Bank Group, I would like to thank you for joining us for this conference. I am confident that over the next two days we will all benefit from sharing experiences around mobilizing Islamic finance for public-private partnerships. And learn how we can do more. This conference brings together two relevant areas in supporting infrastructure development in emerging markets: Islamic finance and delivery frameworks in public-private partnerships.

Malaysia is the global leader in Islamic finance in terms of having a facilitative framework and an attractive Islamic finance market. As of May 2016, 74% of all securities listed in Bursa Malaysia are sharīʿah-compliant, while with infrastructure securities the ratio is 80%. We are therefore here to learn from the Malaysian experience and from all the experts gathered here today.

The World Bank Group’s approach to infrastructure development includes a strong emphasis on knowledge products and collaboration across the development community. That collaboration is especially close with the Multilateral Development Banks. I am honoured and delighted that my friend Walid Abdelwahab, Director of Infrastructure Finance at the Islamic Development Bank, is joining us and will be speaking today on one example of our collaboration: the Doraleh PPP project in Djibouti. This is a prime example of how the MDBs are collaborating, to provide financing, mobilize private capital, build capacity, reduce transaction costs and strengthen the pipeline of bankable projects.

Last month, all of the MDBs, in partnership with the UN, co-hosted the second Global Infrastructure Forum in Washington. There is wide agreement that in order to meet the Sustainable Development Goals, we need to leverage more private sector finance. Indeed the G20 has just endorsed some MDB Principles for Crowding in Private Financing.

Islamic finance can play a significant role in supporting inclusive growth. Estimates, from a report jointly published by the Islamic Development Bank and the World Bank, suggest that sharīʿah-compliant assets have grown exponentially in the past two decades, accumulating nearly $1.9 trillion in assets and spreading across 50 Muslim and non-Muslim countries around the world. Ṣukūk were issued from non-Muslim-majority countries and experienced rapid growth. I would go so far as to say that the Sustainable Development Goals will not be achievable without further growth in Islamic finance.

The World Bank Group’s involvement in Islamic finance is directly linked to the Bank’s objectives of reducing poverty, promoting financial sector development, broadening financial inclusion, and building financial sector stability in client countries. In recent years, the World Bank Group has stepped up its support of Islamic finance in several ways:

  • Firstly, providing Advisory Services to support regulators, central banks and policy makers, for example, on Islamic Banking Supervision;
  • Secondly, deploying Islamic financial instruments, including equity and financial/investment products that are adapted to the requirements of Islamic financing. For example, IFC’s Treasury has issued 3 sukuks; the first one in 2004 in the Malaysian market, as a MYR 500 million Wawasan Islamic Bond; a second one in 2009, in the GCC region, as a $100 million Hilal Sukuk; and more recently in 2014, a $100 million Wakala Sukuk, with a five-year maturity through Nasdaq Dubai).
  • Thirdly, providing political risk insurance for critical projects funded through Islamic financing structures. In 2007, MIGA provided political risk insurance for the Doraleh Port in Djibouti that was funded through an Islamic financing structure. MIGA issued guarantees totaling $427 million ($5 million for DP World’s equity investment and $422 million in Islamic project financing) against the risks of currency transfer restriction, expropriation, breach of contract, and war and civil disturbance. The success in putting together this project opened the door for political risk insurance to support future complex projects with Islamic financing.
  • And finally, the World Bank Group contributes to developing global standards for Islamic finance transactions; such as via the Islamic Finance Services Board Core Principles for Regulation and Supervision of Islamic Banks.

Another example worth mentioning is the Queen Alia International Airport in Jordan signed in 2007. It involved rehabilitating the existing airport, constructing a new terminal with a capacity of 12 million passengers per year, and operating the airport over a 25-year concession. This project is considered the first Middle-East PPP using conventional and Islamic finance. The Islamic structure of this project was a US$100 million Istisna’a combined with a forward lease under the Ijara structure. The success of the partnership led to further funding in 2014, arranged by the Islamic Development Bank and IFC, with commercial banks. The airport has received numerous awards, including best airport in the Middle East in 2014 and 2015, and its global ranking has skyrocketed from 186th to 30th.

The World Bank Group has also been promoting knowledge of Islamic finance to raise awareness and promote the worldwide use of sharīʿah-compliant financing instruments. Notably, last year the Islamic Development Bank and the World Bank published the first Global Report on Islamic Finance, which details the prospects for the global Islamic finance industry and its potential to help reduce worldwide income inequality, enhance sharing prosperity, and achieve the Sustainable Development Goals. And, in line with today’s discussions our upcoming Report on Mobilizing Islamic Finance for Public-Private Partnerships, also in partnership with the Islamic Development Bank, is being finalized and will be released later this year. The research in this report intends to raise awareness on how to best mobilize sharīʿah-compliant capital toward infrastructure PPPs.

The report will focus on three areas:

(i) First, the experiences gathered in the use of Islamic finance in PPPs;

(ii) Second, the legal and regulatory instruments that are conducive or unfavorable to sharīʿah-compliant investments; and

(iii) Third, the structures used in recently concluded projects by means of Islamic finance.

The research was enriched by a workshop in Dubai in March where dozens of Islamic finance professionals gathered, exchanged experiences on shariah-compliant PPPs and gave feedback on the draft report. We are very grateful to the practitioners who participated, and in particular those who have been contributing to our research since then, including Mohammed Paracha from Norton Rose Fulbright and Khalid Howladar from Accreditus, who will both be speaking later today. The report will include a concrete set of recommendations to mainstream the mobilization of Islamic finance into sustainable infrastructure projects.

But there is much more which we in the World Bank Group would like to do, to promote Islamic financing in infrastructure and PPPs. We need your guidance.

This brings us to our conference today. Given the potential of Islamic finance to support infrastructure development, this conference will focus on how to best deploy Islamic project finance into PPP delivery frameworks and identify the relevant policy, legal, regulatory and institutional interventions necessary to expand Islamic financing.

As we delve into the details of Islamic finance and public-private partnerships through the day, let us keep in mind and be motivated by our two end goals: to end extreme poverty within a generation and to boost shared prosperity. We are determined to attain those goals. As the proverb goes, it takes a village. A significant proportion of the village involved in Islamic financing and PPPs is gathered here today. Let us make our deliberations purposeful. There’s one easy test for that. In five years’ time, when another conference on this topic is being held, and hopefully Islamic financing of PPPs has increased further, will the speech writers hark back and cite the 2017 meeting in Kuala Lumpur? I hope so.

I thank you for your time and attention and wish everyone a successful meeting.

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