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Leveraging financial tools for
infrastructure projects
ISMED Task Force on Islamic
Finance
11/12/2014
The context
• Challenges specific to the region imply that financiers
have to think outside of the box and sometimes
innovate to successfully close a transaction
• Islamic Finance has never seen greater appeal
• it is increasingly pivotal for financial sector participants
to understand the field of Islamic finance and how it
can be utilized in new and innovative financing
structures
11/12/2014
An introduction to Islamic Finance
• Reminder of five pillars of Islamic Finance:
– Two requirements:
• Participation in losses and profits;
• The investment enters the scope outside of financial sector,
free from gambling and speculation, towards development
of real, tangible economy.
– Three prohibitions:
• “Maysir”, directing that no speculation is possible;
• “Gharar” - lack of 100% transparency of the investment, if
the investment remains uncertain, the investment is
prohibited;
• “Riba”, prohibition of interest in banking loans, the basis is
that it is prohibited “to gain money with money”.
11/12/2014
Islamic finance vs conventional
finance
• In banking : the existence of interest between loaner
and borrower.
• Insurance : risk, uncertainty, hazard (“aléa”), the basis
of insurance contract
• Symbolic economy - making money with money
• State law vs. Shariah principles ?
- Case Shamil Bank of Britain EC vs. Beximco Pharmaceuticals Ltd (Court of Appeal, 28 January
2004): The governing law cannot be English law subject to Shariah principles
11/12/2014
Islamic Finance and infrastructure
• Long-term financing: matching maturity of long-term
investment
• Participative financing in the performance of the
underlying assets: the financier acts as a partner and
the remuneration due by the company is only based on
the cash-flows generated by the financed assets
• Asset-based and asset-backed financing: financing
based on tangible assets
11/12/2014
The objectif of the propositions
• To trigger on a more frequent basis Islamic compliant
financing as a complement to conventional financing to
fund infrastructure development
• To develop project finance structures that are not only
consistent with Shari’a principles but are also
attractive to international capital providers
• To provide comprehensive tools to limit the obstacles in
structuring projects partially or fully funded by Islamic
investors
11/12/2014
Université Paris-Dauphine
L’université choisie
11/12/2014

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Session 4 Arnaud Raynouard, Université Paris Dauphine

  • 1. Leveraging financial tools for infrastructure projects ISMED Task Force on Islamic Finance 11/12/2014
  • 2. The context • Challenges specific to the region imply that financiers have to think outside of the box and sometimes innovate to successfully close a transaction • Islamic Finance has never seen greater appeal • it is increasingly pivotal for financial sector participants to understand the field of Islamic finance and how it can be utilized in new and innovative financing structures 11/12/2014
  • 3. An introduction to Islamic Finance • Reminder of five pillars of Islamic Finance: – Two requirements: • Participation in losses and profits; • The investment enters the scope outside of financial sector, free from gambling and speculation, towards development of real, tangible economy. – Three prohibitions: • “Maysir”, directing that no speculation is possible; • “Gharar” - lack of 100% transparency of the investment, if the investment remains uncertain, the investment is prohibited; • “Riba”, prohibition of interest in banking loans, the basis is that it is prohibited “to gain money with money”. 11/12/2014
  • 4. Islamic finance vs conventional finance • In banking : the existence of interest between loaner and borrower. • Insurance : risk, uncertainty, hazard (“aléa”), the basis of insurance contract • Symbolic economy - making money with money • State law vs. Shariah principles ? - Case Shamil Bank of Britain EC vs. Beximco Pharmaceuticals Ltd (Court of Appeal, 28 January 2004): The governing law cannot be English law subject to Shariah principles 11/12/2014
  • 5. Islamic Finance and infrastructure • Long-term financing: matching maturity of long-term investment • Participative financing in the performance of the underlying assets: the financier acts as a partner and the remuneration due by the company is only based on the cash-flows generated by the financed assets • Asset-based and asset-backed financing: financing based on tangible assets 11/12/2014
  • 6. The objectif of the propositions • To trigger on a more frequent basis Islamic compliant financing as a complement to conventional financing to fund infrastructure development • To develop project finance structures that are not only consistent with Shari’a principles but are also attractive to international capital providers • To provide comprehensive tools to limit the obstacles in structuring projects partially or fully funded by Islamic investors 11/12/2014