Islamic financing of mute social infrastructure

The typical Islamic alternative to interest-bearing investments is participatory financing, in which parties split output. Such mechanisms, however, can only be applied to investments that produce tangible outputs. No participatory investment is possible for mute investments, which have no explicit yield. Two examples of mute investments are public schools and lighthouses. One proposed method of Islamically financing mute investments is through istisna , or contracted production. In such an arrangement the government forwards the details of its proposed project and accepts bids from contractors. Contractors (or investors) produce the project and sell it to the government in installments and at a profit. The government pays with deferred-price certificates of indebtedness (DPCs). These certificates have different maturity dates, in line with the deferred payment scheme. Although the contractor/investor loses some liquidity, he can take this into account when fixing his price.