GRM 2010 GRM 2011

Abstract Details

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The prospect of using Islamic Finance for infrastructure public-private partnerships: Lessons from Airport cases
Paper Proposal Text :
The Arab states of the Gulf Cooperation Council (GCC) have largely been the sole providers of public infrastructure since the discovery of oil in 1950s. The drastic drop in oil prices starting from mid-2014; however, is challenging the capacity of Gulf states to continue their tradition of funding the mega-infrastructure projects necessary for their socio-economic development. Therefore, public-private partnerships (PPPs) are looming as an attractive policy instrument to deliver these projects though private finance. Examining the application of Islamic finance and Shari’a compliant methods for financing PPP projects is a timely subject. Although Islamic finance has gained increasing popularity after the higher performance of Islamic Banks during the global financial crisis, little is known about the possibility of relying on Islamic banking institutions to fund long term infrastructure projects under the PPP scheme.
The purpose of this article is to examine the prospect, challenges and opportunities of using Islamic finance methods to deliver mega-infrastructure projects funded by the private sector. The article uses the case of airport projects which were developed as a Build, Operate, and Transfer (BOT) concession contract. A number of Islamic banks provided $1.2 billion to finance these projects that are considered mega infrastructure projects to be delivered through the PPP route in the Gulf region. Empirical data for this study is based on twelve interviews with senior government officials representing numerous public and private sector entities. This case stands as both a successful PPP experiment, and effective utilization of Islamic finance instrument.
The findings of this paper have important empirical and theoretical implications. First, the article provides a comprehensive account of the uniqueness of the Islamic finance method to structure the loans for the projects, and contrasts it with the conventional western banking financing system of similar PPP projects. This explains how contracts under Islamic finance systems handle the risks associated with long term infrastructure projects. Second, lessons learnt from this case study can help theorize the use of Islamic finance for funding PPP projects, and help other GCC countries replicate this experience. The article hopes to trigger a debate about the different experiences of using Islamic finance for PPP projects within the wider Islamic world.