Reflection on Practical Aspects of Islamic Project Finance: Implications of Partnering with or Departing from Conventional Project Finance
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- Y. Abid
Published 17 May 2021
Abstract
Islam is not antagonist to market forces nor to market economy, and its attitude to international trade is positive. Profit is acceptable under Islam but there are restrictions on what a financier can do.
As conventional debt market is not always able to respond to the total debt financing requirements for some projects, an increasing percentage of capital-intensive projects have been financed not just from one source of debt finance, but from two or several sources, including Islamic project finance.
Expectations, that Islamic project finance offers advantages higher or at least comparable to conventional project finance, are truly challenging.
This article explores practical aspects of Islamic project finance that set it apart from conventional project finance, in addition to the main challenges facing its use at a larger scale.
It has been demonstrated in this article that, promoting Islamic project financing without defeating the merits of Islamic law, while not losing sight of the need to enhance its competitiveness on the finance market, is a key challenge for Islamic project finance to win. In this context, a number of polemical issues, driven by concerns about mingling Islamic funds with other non-Islamic funds, in multi-sourced projects, are addressed throughout this article.
Because applying the very set of rules and laws to Islamic project finance as the conventional project finance, may disqualify the sharia-compliant character of a given Islamic financing transaction, the article further analyzes a variety of legal devices aiming at ensuring the application of sharia law to Islamic financing transactions at a potential dispute.
It is the goal of this article to help the reader gain exposure to some of the challenges that are facing Islamic project finance, and to some of the controversial issues that have been, or yet to be, dealt with in this respect.
This paper will be part of the TDM Special Issue on "Islamic Finance and Dispute Resolution". More information here www.transnational-dispute-management.com/news.asp?key=1832
