Laurence Carter, Senior Director, World Bank Group, said that the world can learn from Malaysia as 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 shari'ah-compliant, while with infrastructure securities the ratio is 80%," he said in welcome remarks at Islamic Finance and Public-Private Partnerships (PPPs) for Infrastructure Development, a conference by Securities Commission Malaysia and the World Bank in Kuala Lumpur, Malaysia.
Carter added that 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 shari'ah-compliant assets have grown exponentially in the past two decades, accumulating nearly US$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," he said.
Carter explained that 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:
- Provides advisory services to support regulators, central banks and policy makers, for example, on Islamic banking supervision;
- Deploys Islamic financial instruments, including equity and financial/investment products that are adapted to the requirements of Islamic financing. "For example, International Finance Corporation (IFC)’s Treasury has issued three sukuks; the first one in 2004 in the Malaysian market, as a RM500 million Wawasan Islamic Bond; a second one in 2009, in the GCC region, as a US$100 million Hilal Sukuk; and more recently in 2014, a US$100 million Wakala Sukuk, with a five-year maturity through Nasdaq Dubai.
- Offers political risk insurance for critical projects funded through Islamic financing structures.
- Helps to develop global standards for Islamic finance transactions; such as via the Islamic Finance Services Board Core Principles for Regulation and Supervision of Islamic Banks.
When it comes to PPP, Carter cited the Queen Alia International Airport in Jordan, a project which was 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 (الإستصناع) combined with a forward lease under the ijarah structure. The success of the partnership led to further funding in 2014, arranged by the Islamic Development Bank and IFC, with commercial banks," he said.
The World Bank Group has also been promoting knowledge of Islamic finance to raise awareness and promote the worldwide use of shari'ah-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.
An upcoming Report on Mobilizing Islamic Finance for Public-Private Partnerships, also in partnership with the Islamic Development Bank, is being finalised, Carter said, and will be released later this year. The research in this report is meant to raise awareness on how to best mobilise shari'ah-compliant capital toward infrastructure PPPs, focusing on experiences gathered in the use of Islamic finance in PPPs; the legal and regulatory instruments that are conducive or unfavourable to sharī'ah-compliant investments; and the structures used in recently-concluded projects by means of Islamic finance.
"The report will include a concrete set of recommendations to mainstream the mobilisation of Islamic finance into sustainable infrastructure projects," he said.