The Chairman, Altra Capital United Kingdom, Professor John Davie in a recent presentation on the developments in Islamic Finance at a recent forum in Lagos, identified the reasons why Islamic Finance is deployed for Public-Private Partnerships (PPPs).
In his presentation, Altra's chairman said the use of Islamic financing for PPP projects is becoming more common for the following reasons:
The expert highlighted the sharia-compliant components in PPPs, which include;
According to Prof. Davies the asset-backed, ring-fenced , and project-specific nature of Islamic finance structures and their emphasis on sharing risks make them a natural fit for infrastructure public-private partnerships [PPPs].
He asserted that currently, the problem is that of matching the supply of finance from the private sector with investable projects.
Giving an illustration, the expert asserted that the main forms of financing infrastructure remain:
Corporate or on-balance sheet finance
getting finance for the project based on the balance of the private operator
"limited recourse" or "non-recourse" financing
Non-recourse finance is a type of commercial lending that entitles the lender to repayment only from the profits of the project.
Speaking further, he gave an insight into typical Islamic finance PPP, even as the repayment profile depends upon each particular debt obligation. Typically, there will be:
Giving further insight he said all projects are different, but a typical debt repayment profile might be as follows:
According to him, Sukuk raises all the financing on the day of subscription. This is not the ideal for infrastructure PPP projects, due to the dynamic nature of greenfield projects which often have an uneven pattern of expenditure calling for funds at different times during construction and operation.