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Sukuk

How Islamic finance is helping fuel Malaysia’s green growth

Victoria Kwakwa's picture
Photo: bigstock/ f9photos

Income growth is not the sole aim of economic development. An equally important, albeit harder to quantify objective is a sense of progress for the entire community, and a confidence that prosperity is sustainable and shared equitably across society for the long term.  

Islamic sukuk: A promising form of finance for green infrastructure projects

Michael Bennett's picture
Casablanca traffic. Arne Hoel/World Bank


Three trends in the  global financial market are converging to make sukuk, the Islamic financial instrument most similar to a conventional bond, a potentially viable form of finance for green investments: (1) banks are reluctant to finance infrastructure due to stricter capital requirements; (2) an increasing number of investors are interested in ‘environmentally sustainable investing’ (in other words, investing to promote activities seen as positive for the environment); and (3) the market for sukuk  is growing significantly. While these three trends are distinct and not obviously related, taken together, they create a market opportunity for sukuk to be used as a tool to finance environmentally sustainable infrastructure projects.
 
The need for significant infrastructure spending is obvious in both developed and developing countries. From crumbling transportation infrastructure in the United States to inadequate power generation capacity in India, the evidence is clear that improving infrastructure is a global priority. At the same time, popular concern about climate change and the detrimental impact of increasing greenhouse gas emissions has also made improving infrastructure in an environmentally sustainable manner a priority.