Explored three core themes: (1) infrastructure funding and the role of Islamic finance, (2) supporting the Sustainable Development Goals (SDGs) adopted at the United Nations in 2015, and (3) addressing practical impediments to applying Islamic finance for infrastructure funding and supporting the SDGs. The workshop closed with concluding remarks from participants on the path forward. The discussion began with an attempt to reach a shared working definition of "infrastructure" in the current context. Key features of infrastructure were cited as (1) being used for capital-intensive public works that bring social benefit, (2) adopting a project finance model, with recourse mainly to the project, and (3) often involving governments or public-private partnerships (PPPs).
The challenge of scale: Several participants stressed that infrastructure projects tend to be large-scale in nature, whereas the Islamic finance industry is relatively small. Further, the funding sources of the industry are short-term in nature-it was observed that 70% of the industry stems from retail banking, principally in the form of demand or short-term deposits. This situation creates a challenge in the form of mismatching assets and liabilities: infrastructure assets are long-term in nature; bank deposits are short-term liabilities. A further challenge associated with scale is the matter of risk management: Islamic financial institutions rightly need to diversify their exposure and limit their concentration to a single project or sector. This impairs their ability to lead major infrastructure projects. Participants considered ways in which Islamic finance has played-and can continue to play-an important role in infrastructure projects. The Islamic Development Bank, with its extensive portfolio of infrastructure financing, was cited as an example. Participants also cited examples of Islamic banks collaborating with one another and with other financial institutions, with such collaboration dating back over twenty years.
Interaction with conventional finance: A question posed to the forum was how Islamic finance is differentiated from conventional finance in the context of infrastructure. Numerous attendees emphasized that Islamic finance in fact collaborates with and complements conventional finance on infrastructure projects. An example was cited of a project in which the Islamic finance tranche comprised 2% of the total transaction. In such settings, Islamic finance can require additional documentation and add complexity to the transaction despite being a small share of the total funding. Attendees noted, nonetheless, that Islamic finance has been able to demonstrate both applicability to infrastructure funding (for example, the 100% Islamic financing of Madinah Airport) and the ability to effectively collaborate with conventional finance.