Presentasi paper pada konferensi ilmiah di ITB Bandung. Financing the infrastructure; What Islamic Finance may offers

1. Financing The Infrastructure;
What Islamic Finance May Offers
_________________________________________________
Wiku Suryomurti, ST, MSi
Wiku.suryomurti@gmail.com
www.wikusuryomurti.com
www.rasyidin.com
SEVENTH INTERNATIONAL CONFERENCE ON
MULTI-NATIONAL JOINT VENTURE FOR
CONSTRUCTION WORKS
2011

2. 2
Content
1. Abstract
2. Background
3. Islamic Finance
v Sukuk
4. Project Example
5. Conclusion

3. 3
Abstract
v The lack of adequate infrastructure
capacity generally has hindered
development and brought up
issues that investment reforms are
required. Infrastructure as part of
construction is the basic physical
and organizational structures
needed for the operation of a
society or enterprise, or the
services and facilities necessary
for an economy to function
v This paper explores issues and
c h a l l e n g e s i n f i n a n c i n g
infrastructure or construction and
what islamic finance can offer to
overcome the problem.

4. Background
• Overall economic performance of Indonesia has
improved, with an average growth of 5.5 percent (ISDB,
2010), while in 80s and 90s were about 7-7.5 percent
• Reasons for this level of growth is the lower levels of
investment in infrastructure of around 3.5 percent of
GDP
• Potential cause of low development in infrastructure
(ISDB, 2010)
– Low-level of Public Investment in Infrastructure
– Weak Public-Private Partnerships
– Low-level of Private Investment in Infrastructure:
4

5. Comparison of Infrastructure Development among
South East Asia Countries
• we can see that Indonesia has slightly low rank in providing quality
infrastructure compared to neighborhood countries. Indonesia is just
a little bit better than Vietnam and Philippines.
5

6. Funding Requirement Projection
• Foreign direct
investment
(FDI) will
remain an
important
source of
funds for the
development
of the
infrastructure
sectors.
6

7. • The development of domestic long-term
capital markets will be critical for private
sector investment in infrastructure, but
these markets must have much better
regulation as well.
• So, then we must look into alternative
sources of fund and funding mechanism
7

8. Islamic Finance
• The basic principle of Islamic Finance is
– the sharing of profit and loss,
– the prohibition of Riba (usury), Maysir
(gambling) and Gharar (uncertainty)
8

9. Landscape of Islamic Financial System
9
Mobilisation of
Fund
Islamic
Money
Market
Takaful
Solution for
long term
fund &
investment
Enhances of
depth &
Liquidity of
Financial
Systems
Islamic
Financial
System

10. Sukuk
• Sukuk is an Islamic
financial certificate,
similar to a bond in
Western finance that
complies with Sharia,
Islamic religious law.
10

11. Difference between Sukuk and Conventional Bond
• Sukuk do not represent issuer debt, but represent an undivided
ownership share in the spesific assets/projects/services
• Asset backed/Asset based
• Claims
– Sukuk holders have ownership claims on the specific underlying assets/projects/
services
• Security
– Secured by ownership rights in the underlying assets or projects in addition to
any other structured collateral enhancement mechanisms
• Principal and return not guaranteed by the issuer
• Purpose
– Must only be issued for purposes permitted by Islam (halal)
• Tradability
– Sale of ownership interest in a specific asset/project/service
11

12. SUKUK MARKET
• global sukuk market
is estimated to be
US$18 billion and
these funds could
be utilized to
increase liquidity in
the Islamic world
12
Islamic
Capital
Market

13. STRUCTURE OF SUKUK MARKET
13
Sukuk
Market
Important
mechanism
linking
excess
funds
towards
produc;ve
investments
Structure
must
be
based
on
real
underlying
assets
thereby
preven;ng
excessive
leverage
by
issuer
and
over
exposure
of
the
financing
Syariah
principles
require
financing
to
generate
real
economic
benefits
thereby
preven;ng
financing
for
specula;ve
purposes
with
no
real
economic
gains

14. Sukuk Issuance
14

15. Sukuk Issuance by Country
• Malaysia has the
highest sukuk
issuance by country
at 71.23%.
• This is due to the
strong regulatory
framework that
promotes the active
and vibrant
functioning of the
system
15

16. Main types of Sukuk
• Ijarah Sukuk
– A security, the holder of which owns in common, parts of an asset that has been transferred
on the basis of Ijarah contract. This security has a fixed yield and can be transferred to other
parties in the secondary market.
• Istisna Sukuk
– Sukuk that carry equal value and are issued with the aim of mobilizing the funds required for
producing products that are owned by the certificate holders. The issuer of these certificates
is the manufacturer (supplier/seller), the subscribers are the buyers of the intended product,
while the funds realized from subscription are the cost of the product
• Musharakah Sukuk
– Musharakah Sukuk are securities in which its holders are owners of a specified property in
common. Sukukholders will gain (lose) from any increase (decrease) in the underlying asset
prices.
• Murabaha Sukuk
– The issuer of this Sukuk is the seller of the Murabaha commodity, the subscribers are the
buyers of that commodity, and the realised funds are the purchasing cost of the commodity.
The certificate holders own the Murabaha commodity and are entitled to its final sale price
upon the re-sale of the Commodity.
16

17. Project Example
17

18. • Dubai Civil Aviation Authority Sukuk
• Sukuk Profile
• Status : Matured
• Issuer Name : Dubai Global Sukuk FZCO
• SukukName : Dubai Civil Aviation Authority Sukuk
• Type of Structure : Ijarah
• Country : UAE
• Currency : USD
• Closing Date : 04Nov04
• Tenor : 5 Years
• Issuer Size : USD 1,000,000,000
18

19. Structure of Dubai Civil Aviation Authority Sukuk
19

20. Structure of Tabreed 08 Sukuk
• This sukuk issuance
is being used to fund
the construction of
district cooling plants.
• The structure of this
transaction makes
use of both an ijara
(sale and leaseback)
and istisna
(construction and
delivery) agreement
20

21. Conclusion
• Sukuk or Islamic bond and equity participation
instruments are naturally suited for project finance
• Their potential should be explored through consultations
early on in the project development process so that the
financing plan can be tailored to the specific
requirements of Islamic finance.
• Sukuks may offer the answer for several reasons:
– There is a growing awareness, interest and appetite for Sukuk
among non-Muslims,
– Billion dollar from middle east seeking for halal investment
– governments are supportive, and
– Sukuk offers structural flexibility; better asset/liability
management as well as refinancing options.
21

22. Conclusion (continued)
• Further research reveals the existence
and successful project infrastructure
abroad that used sukuk as financial option.
22

23. Wiku Suryomurti reserve all proprietary rights to the contents of this Presentation. No part of this Presentation may be used or
reproduced in any form without the Author’s prior written permission.
This Presentation is provided for information purposes only. Neither the Presenter make any warranty, express or implied, nor
assume any legal liability or responsibility for the accuracy, completeness or currency of the contents of this Presentation.
It is your responsibility to verify any information before using or relying on it.
http://www.wikusuryomurti.com
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THANK YOU
WIKU SURYOMURTI, ST, MSi
Independent Financial Consultant
Lecturer, Book Writer
Tel: +62 818-0655-0839
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