Islamic Finance and the Resources Sector : A Natural Fit for Project Finance

West, Jason

doi:10.12816/0001599

Cited by 3 publications

(4 citation statements)

References 18 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This is typical of public-private partnerships in the GCC utility sectors, where fixed feed-in tariffs and buy agreements guarantee a competitive rate of return [3,45]. Furthermore, West [56] mentions that financial institutions are reluctant to engage in long-horizon project loans without government backing, especially in emerging economies, suggesting that Islamic financing may be an ideal medium for project finance in the resource sector.…”

Section: Model and Data Descriptionmentioning

confidence: 99%

Energy project financing in the GCC region: an empirical investigation

Atalla

D’Errico

2019

Energy Transit

View full text Add to dashboard Cite

This paper analyzes the capital structure of energy infrastructure projects in the Gulf Cooperation Council region, where energy projects form the bulk of the deal-making backload. The econometric estimation of 108 energy project finance for the period 2005-2014 valued at 258 bn USD sheds the light on the success factors for such projects in the region, confirming the relevant relationships among project size, owner concentration and debt duration. The analysis illustrates the roles that debt, equity, interest rate, and the economic crisis play in the financial structuring of infrastructure projects in rapidly growing emerging markets. First, it confirms that longer debt duration is correlated with higher debt ratio. Second, it shows that larger project size is correlated with lower debt ownership concentration. Third, the financial crisis had a different effect on debt ratio and debt duration. Fourth, project size and interest rate are negatively correlated, although regional specific patterns would emerge when comparing the effects of the 2008 financial crisis on interest rates. These findings have several multilevel implications for regulators, debt issuers and investors. For regulators, findings amplify the way in which to improve debt issuance in GCC countries. For issuers, findings suggest that they should be more concerned about the bonds' security and seniority as the firm-specific characteristics, such as size and debt and equity concentration of finance project, affect the capital structure. For investors, the study offers an analytical framework to investigate bonds' structure before investing.

show abstract

Section: Model and Data Descriptionmentioning

confidence: 99%

Energy project financing in the GCC region: an empirical investigation

Atalla

D’Errico

2019

Energy Transit

View full text Add to dashboard Cite

show abstract

“…Countries that are applying Islamic law to their banking and financial systems were more resilient during the crisis, which has made the rest of the world turn to investigate and study the implementation of Shariah (Islamic law) into their economic and financial systems (Kayed & Hassan, 2011;Hasan & Dridi, 2010). Even in the western world, firms are actively seeking to convert their conventional loan agreements with commercial banks into shariah compliant loans, because the idea of Islamic funding resembles an investment partnership and profit-loss sharing agreement where it implies greater flexibility and commitment for a longer term (West, 2013). …”

Section: Infrastructure Project Financing In Developing Countriesmentioning

confidence: 99%

“…Literature (Alexander, 2011;Biancone & Shakhatreh, 2015;West, 2013) The distinction between shariah compliant financing and conventional financing is that it needs to avoid riba. The true principle of shariah compliant financing is profitloss sharing while in most conventional financing it is common and acceptable to take profit from interest.…”

Section: Shariah Compliant Financingmentioning

confidence: 99%

“…The contract in murabahah occurs multiple times. Islamic banks as a financial institution very commonly offer short-term financing using murabahah rather than longterm financing because it involves little risk for the bank (Ariss, 2010;Beck, Demirgüç-Kunt, & Merrouche, 2013;West, 2013). It was also recorded that in the Indonesian Islamic banking industry for the period of 2004-2011, murabahah was the most favourite financial instruments utilised (Ismal, 2014).…”

Section: Debt-based Financing Instruments (Murabahah Istisna and Ijmentioning

confidence: 99%

See 1 more Smart Citation

Identifying risk in shariah compliant financing for transport infrastructure projects in Indonesia

Rianto¹

View full text Add to dashboard Cite

The Government of Indonesia is seeking an alternative mode of finance to develop its transport infrastructure. Taking into account the large Muslim population in Indonesia, the strong domestic demand for Islamic finance products, and the growing potential of Islamic banking operations, the government has been promoting the use of shariah compliant financing. Shariah compliant financing is in its infant stages, with a variety of financing instruments from debt-based financing (murabahah, istisna, and ijarah), equity-based financing (musharakah and mudharabah), and service-based financing. Financing can also be obtained from issuing and selling sukuk, certificates that represents ownership of a tangible asset or its usufruct, to investors. Shariah compliant financing and conventional financing are distinguished on the principle of financing, asset ownership, and the involvement of shariah board as a technical and administrative body supervising relevant activities comply with shariah.The literature to date has predominantly focused on risks in the Islamic banking industry and its operation. This research aims to identify the sources and types of risk exposure in shariah compliant financing for transport infrastructure projects in Indonesia. This research conducted thirteen semi-structured interviews with key transport stakeholders from the government, Islamic bank, academic, and consultant sectors. The research reveals that in Indonesia, debt-based shariah compliant financing instruments are the most utilised to finance transport infrastructure projects. The research identified that railways, roads, bridges, and seaports are the type of transport infrastructure facilities that are financed using shariah compliant financing instruments. The risks in shariah compliant financing are generally similar to the risks found in conventional projects with the addition of shariah compliance risk. These risks are identified into four categories: market, institutional and regulatory environment, shariah compliance, and project and structuring.The government is recommended to provide higher return of investment and shorter maturity terms in sukuk to attract more investors and stimulate the secondary market to reduce liquidity risk for the investors. This research also proposes that the National Shariah Board should be involved not only in the structuring stage but also in the entire lifespan of financing to ensure the transaction complies with shariah and reduce the exposure to shariah compliance risk.

show abstract