KUALA LUMPUR: Islamic finance is well suited to bridge financing gaps in long-term infrastructure development projects, especially in less developed markets where fundings are scarce.
Deputy finance minister Datuk Johari Abdul Ghani (pic) said while the potential in Islamic financing was huge, it could meet long-term funding needs for infrastructure projects since it suited its asset-based and risk-sharing nature.
“Emerging markets especially, were struggling to source funds for infrastructure projects and this is where Islamic finance can step in to fill the gap and fund long-term development projects,” said Johari in his speech at a workshop on “Developing An Islamic Infrastructure Investment Platform (I3P)” in conjunction with the 5th Global Islamic Finance forum yesterday.
While other options were being explored by policy makers and stakeholders to close the financial gap, he revealed that the global Islamic capital market has expanded in size and depth across areas, with a combined market value of over US$21.5tril spread across 70 jurisdictions.
He said as of first quarter 2016, Malaysia’s capital markets have expanded by RM2.82tril, with RM1.15tril in bond market. And of the RM1.15tril, about 54% comprised sukuk.
“With the figure mentioned, our market is basically well-structured and have the ingredients to be successful and tap into other markets.
“However, it is pertinent for us to help other Asia-Pacific Economic Cooperation Business Advisory Council (ABAC) countries because some may need capital to build their infrastructure,” he said.
Notably Malaysia’s sukuk market is the largest in the world, accounting for more than 70% of global sukuk issuances, but this and other Islamic finance instruments only defined a small portion of Asia’s overall financial market.
Johari said going forward, the I3P would perhaps provide a platform to raise key obstacles and promote expansion of cross-border investment by Islamic financial institutions.
Delegates at the workshop were also urged to come up with suggestions on how they can package a wide variety of Islamic financial products such as sukuk, hedging, banking and Takaful in a holistic manner and in a more cost-effective way to help finance infrastructure development needs across the region.
In October last year, the Brunei government tied-up with Asia-Pacific Infrastructure Partnership and ABAC Brunei to host a workshop that discussed, among others efforts to close the financial gaps in countries via Islamic financing.
It also addressed the need to formalise the I3P for better cross-border investment by Islamic financial institutions to aid in infrastructure projects in Asia-Pacific economies.