Sustainable Development and Infrastructure: An Islamic Finance Perspective (Palgrave Studies in Islamic Banking, Finance, and Economics)

Most books on Islamic finance and development issues are written from an academic perspective. Although academic reflection is key for future direction, dissatisfaction with previous development efforts, as evidenced by their lack of sustainability, suggests the need for a different type of review. Development work is complex and requires a detailed and transparent approach in order to ensure a cogent resolution for potential long-term issues. Each intervention area requires specific elaboration for meaningful impact. The perfect solution for one sector might be detrimental for another. Islamic finance, with its strict Riba restrictions, rules, and other checks and balances, is a good fit for infrastructure development in pursuit of sustainable development. When it comes to sustainable development, this book argues, Islamic finance has the tools to intervene for maximum impact. However, the issue of sustainability is not only related to Islamic finance; more policy discourse is needed. This requires guidance from the principles of Islamic economics, as well. This book discusses infrastructure development vis-à-vis sustainable development, drawn from decades of real-life development banking experience, and proposes impactful intervention methods based on wisdom from Islamic economics and finance. Preface 7 Contents 9 About the Authors 13 List of Figures 15 List of Tables 16 1 Islamic Finance for Sustainable Development Goals 17 1.1 Commercial Resources for Islamic Microfinance and Economic Infrastructure Development 19 1.2 Grants for Hunger and Wealth Redistribution 26 1.3 Concessional Resources for Social Infrastructure Development 28 1.4 The Narrative 31 References 34 2 Islamic Versus Conventional Infrastructure Project Finance vis-à-vis Time-Overrun Issues 36 2.1 Project Cycle of MDBs 39 2.2 Comparison of Disbursement and Procurement Processes 41 2.3 Comparison of Legal Agreements, Collateral, and Default 44 2.4 Determinant of Time Overrun 48 References 50 3 Identifying Infrastructure Sectors for Islamic Public–Private Partnerships Projects 51 3.1 Islamic PPPs 54 3.2 Defining Success Factors 61 3.3 PPPs Toward Sustainable Outcome 67 References 69 4 Sustainable Islamic SME Financing 71 4.1 The Role of SMEs in Economic Infrastructure and SDGs 71 Funding Gap 71 Source of Financing 71 SME Characteristics and Access to Funding 71 4.2 Islamic Financial Products and Product Development for SMEs 76 4.3 Resource Mobilization 81 References 86 5 Economic Empowerment, Zakat, Waqf, and Social Infrastructure 90 5.1 Categorizing Islamic Charitable Spending 91 5.2 The Role and Specifications of Zakat 93 5.3 The Role and Specifications of Waqf 99 References 104 6 Islamic Finance Strife: Risk Management, Regulation, and Supervision 107 6.1 Late Payment Charges 109 6.2 Working Capital Finance 113 6.3 Treasury, Fund Management, and Investment Practices 115 References 122 7 Islamic Approach Toward Energy Sector Infrastructure Development 123 7.1 Setting the Parameters to Evaluating New Business Models 124 7.2 Traditional Reform Proposals for the Energy Sector 129 7.3 Case of “Unlocking Energy Access Finance Through Crowdfunding” 133 The Debt Seniority Feature to Attract More Resources 133 7.4 Evaluation of the Emerging Solution 135 Empowerment 135 Sustainability: Maintenance, Affordability, and Resilience 135 Scale-Up: Replicability and Resource Mobilization 135 References 139 8 Islamic Financial Product Development in the Context of Education and Health 141 8.1 Setting the Stage for Maqasid 142 8.2 From Merchandise Trade Finance to Financing Trade in Services 147 8.3 Islamic Discouragement of Financing Services: Health and Education 150 References 155 9 Irrigation and Drainage 157 9.1 Trio of Performance Areas: Water Service Delivery, Organizational Resources, and Governance 158 9.2 Root Causes 160 9.3 Public–Private Partnership for Irrigation 164 9.4 Islamic Approach with Waqf Development 168 References 173 10 Identifying Equitable and Fitting Business Models for Infrastructure Projects 177 10.1 Sustainability 178 10.2 Resource Mobilization for Scale-Up 181 10.3 Economic Infrastructure and Resource Mobilization 183 10.4 Social Infrastructure and Resource Mobilization 185 10.5 Infrastructure Projects, SDGs, and Global Value Chain 188 References 190 Appendix A: Transaction Scheme for the Case of Unlocking Energy Access Finance Through Crowdfunding 191 Appendix B: Irrigation and Drainage Water Management Performance Areas 192 Bibliography 198 Further Reading 213 Index 216 Most books on Islamic finance and development issues are written from an academic perspective. Although academic reflection is key for future direction, dissatisfaction with previous development efforts, as evidenced by their lack of sustainability, suggests the need for a different type of review. Development work is complex and requires a detailed and transparent approach in order to ensure a cogent resolution for potential long-term issues. Each intervention area requires specific elaboration for meaningful impact. The perfect solution for one sector might be detrimental for another. Islamic finance, with its strict Riba restrictions, rules, and other checks and balances, is a good fit for infrastructure development in pursuit of sustainable development. When it comes to sustainable development, this book argues, Islamic finance has the tools to intervene for maximum impact. However, the issue of sustainability is not only related to Islamic finance; more policy discourse is needed. This requires guidance from the principles of Islamic economics, as well. This book discusses infrastructure development vis-a-vis sustainable development, drawn from decades of real-life development banking experience, and proposes impactful intervention methods based on wisdom from Islamic economics and finance