Deploying Islamic Finance for Infrastructure PPP Projects Post-COVID-19

12 Sep, 2021

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A panel of seasoned development practitioners have explored how Islamic finance can be deployed in infrastructure public-private partnership (PPP) projects to support economic recovery of IsDB Member Countries post-COVID-19.

The panel session, themed ‘Islamic Finance and Economic Recovery in the Post-COVID-19 Era’, was held on 28 August 2021 as part of the 15th IsDB Global Forum on Islamic Finance, a virtual side event of the IsDB Institute in conjunction with the Annual Meeting of the IsDB Group.

H.E. Dr. Muhammad Al Jasser, President of the IsDB, delivered the opening speech during the forum. Earlier, Dr. Sami Al-Suwailem, the Acting Director General of the IsDB Institute, gave the opening remarks, and subsequently presented the 2021 IsDB Prize for Impactful Achievement in Islamic Economics to the winners.

The panel session focused on mobilizing resources to support IsDB member countries’ economic recovery efforts and to ensure that the recovery is inclusive, sustainable, and resilient. Mr. Yahya Rehman, Global Lead Islamic Finance Advisory, IsDBI, moderated the session.

 

Keynote Speech

The panel session began with a keynote speech by the Global Director of the Infrastructure Finance, PPPs & Guarantees Group at the World Bank, Mr. Imad Fakhoury. In the speech, Mr. Fakhoury gave an account of the devastating impact of Covid-19 that has posed staggering challenges for all the global actors of this generation.

He explained the need to act together to develop innovative solutions to meet the infrastructure needs of the member countries. In this regard, the efforts to tap the potential of Islamic finance for rapid and sustainable response is more relevant than ever.

“Islamic Finance has a key role to play in assisting developing countries, both Muslim and non-Muslim, to achieve the SDGs,” Mr. Fakhoury noted. “It can improve the stability of the financial sector with features such as its profit-and-loss sharing arrangements and requirements for a link to the real economy through the creation of physical assets. The asset-backed, ringfenced and project specific nature of Islamic finance structures and their emphasis on sharing risks makes them a natural fit for infrastructure public private partnerships.”

He underlined the excellent work of the IsDB and the World Bank to come up with the publication entitled “Reference Guide: Islamic Finance for Infrastructure PPP Projects”, which is a valuable tool and practical guide for the promotion of Islamic financed infrastructure PPP projects. He further stated that this guide is a timely response to the stakeholder feedback that voiced a need for augmented capacity and provides each aspect of Islamic finance as applied to infrastructure and PPPs.

Mr. Fakhoury concluded his speech with a positive note regarding the accomplishment of the Guide as a stepping stone to tap the global Islamic finance resources. He asked the panel discussants to ponder on the question of what comes next and what can be done better to maximize the potential of Islamic finance to help countries build back better in the pandemic’s wake.

 

Launching of Report

The keynote speech was followed by the launching of the report entitled “Reference Guide: Islamic Finance for Infrastructure PPP Projects”, a joint publication of the IsDB and the World Bank. The Reference Guide covers the most important aspects of Islamic finance as they relate to infrastructure public-private partnerships (PPPs) and contribute extensive case studies of shari'ah-compliant cases and legal templates that match the different structures.

 

Panel Discussion

Ms. Fatouma Toure Ibrahima, Practice Manager, PPP Group Infrastructure Finance, PPPs and Guarantees (IPG) Group, World Bank, noted that the COVID-19 pandemic has significantly impacted ongoing infrastructure projects and also compromised the immediate plans for both the public and private sectors. Government spending dropped by half, more fiscally constrained than ever due to prioritized funding for social safety net programs to address the impact of COVID-19. The World Bank is adjusting and supporting the efforts of the partners including private sector guarantees.

She indicated that increasing infrastructure is critical, and the combination of private-public partnership is an essential prerequisite of resource mobilization. Therefore, it is important to optimize private sector infrastructure solutions that are sustainable and resilient while keeping in mind the best practices, good governance, transparency, and fiscal sustainability – areas in which Islamic finance contribution plays an important role.

 

Mr. Hassan Idris, Senior Legal Counsel, Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), IsDB Group, in his intervention, gave an account of IsDB Group’s response to the impact of COVID -19 through the Strategic Preparedness & Response Program (SPRP) package of USD 4.5 billion, with a three-track Respond, Restore and Restart Strategy. The fast-tracked Respond strategy involved supporting much-needed medical intervention and critical supply needs for the Member Countries.

In order to address the magnitude of challenges and the need for rapid response, the Bank continues optimizing its COVID-19 programs, engaging in partnerships with regional and international development actors, such as UN agencies and the Arab Coordination Group and applying fast-tracked due procedures and mechanism of financing.

Under Medium-term Restore strategy and longer-term Restart strategy, the IsDB Group is working on innovative solutions, including engaging the public and private sectors for financing green and sustainable interventions as one of the priorities.

 

Likewise, Mr. Nadir Nuritdinov, Deputy Director of Uzbekistan PPP Development Agency highlighted that while Uzbekistan is interested in Islamic finance and the history of Uzbekistan and its relationship with the geography of the Islamic world will make it attractive, however, more innovative solutions may facilitate organizing PPP projects using Islamic finance mechanisms.

Mr. Nuritdinov noted that the post-COVID-19 recovery efforts need to start and the PPP model provides an ideal opportunity for both the private and public sectors. In Uzbekistan projects worth USD 6 billion are in the pipeline, while new initiatives are being introduced for private sector engagement in almost all relevant sectors of the economy, especially emergency being the forefront sector followed by health and educational project of different sizes.

 

Mr. Sohail Kashif, Chief Financial Officer, Foundation Wind Energy Limited, Pakistan commented on the positive outcomes of various private sector initiatives in Pakistan, especially energy projects that IsDB is supporting. It is worth noting that the Foundation Wind Emergency Limited is part of the case study presented in the “Reference Guide: Islamic Finance for Infrastructure PPP Projects”. Pakistan has created an enabling environment for the private sector to work on green and sustainable initiatives and the Islamic modes of financing would be a real advantage.

 

Conclusion

The panel focused on Islamic finance in public-private partnerships projects for the member countries’ economic recovery efforts and to ensure that the recovery is inclusive, sustainable, and resilient. The Reference Guide will be a helpful tool for mobilizing the potential Islamic financing at the time when countries are trying to find sustainable and complementary sources of financing for their post-COVID-19 economic recovery and beyond.

From the deliberations of the panel members, it is shown that the funding gap is a massive challenge that needs coordinated efforts. In this context, the experts agreed that Islamic finance has great potential. However, there is a need to create greater awareness and capacity building on the Islamic Finance mechanism and tools to unleash the potentials with the Reference Guide as a particularly helpful and well-timed initiative.

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