Islamic finance can fund infrastructure shortfall

05 June, 2018      412



The boss of an Islamically compliant superannuation fund has hit out at lack of infrastructure investment as "intergenerational theft", calling on the federal government to tap the growing market for Islamic finance to fund a nearly $1 trillion shortfall in infrastructure spending.

Talal Yassine, the managing director of Crescent Wealth and a former Australia Post board member, said an "obvious" solution to encourage more investment in infrastructure was amending the Superannuation Industry (Supervision) Act to require funds to not only act in members' best interests but to also include investing in projects that support Australia's economic wellbeing.

Mr Yassine said the lack of investment in local infrastructure was nothing less than intergenerational theft which was putting at risk Australia's 26 years of consecutive economic growth.

"We don't want to change it, but why are we interpreting it so narrowly – why is it only about returns and cost? Isn't improved infrastructure also in the best interests of superannuation fund beneficiaries?" Mr Yassine asked at The Australian Financial Review's National Infrastructure Summit on Monday.

He said many fund managers believe they can get better returns from lower-risk infrastructure investments overseas and chased these because Australian law requires them to invest in fund members' best interests, "which they interpret as financial".

Mr Yassine urged the federal government to set up a hybrid public-private limited partnership structure to provide seed funding and use its "large reserves" to underwrite guaranteed minimum returns for necessary infrastructure projects.

"Superannuation funds could syndicate the investments to their members," said Mr Yassine.

Reduce risk

In January the $700 million self-managed superannuation fund sector called on on the Turnbull government to develop mechanisms that would allow it to invest in infrastructure.

The SMSF Association argued that self-managed funds could provide much-needed debt and equity financing for infrastructure projects, as well as business loans, which would reduce the risk that members might outlive their savings by providing long-term, stable investments.

One suggestion from the peak body was to set up a bond aggregator, similar to the affordable housing bond aggregator, but to modify it to include retail bonds. Such an aggregator could be used to finance infrastructure projects.

Mr Yassine said one source of funding for Australian infrastructure was the growing regional and global Islamic finance market.

"The Australian government is well placed ... to issue sukuks to assist in the funding of our infrastructure. Islamic investment principles and values align with low risk-medium returns over the long period," he said.

In 2014 the United Kingdom became the first Western country to issue an Islamic bond, known as a sukuk. Under sharia law Islamic banking assets can't be invested in alcohol and tobacco. The sector is projected to reach about $US3.4 trillion ($4.4trillion) globally this year.

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