ISLAMIC FINANCE AND PUBLIC-PRIVATE PARTNERSHIP: VIABILITY, OPPORTUNITIES AND RECOMMENDATIONS Securities Commission Malaysia – World Bank Conference 8-9 May 2017, Kuala Lumpur, Malaysia Report on Islamic Finance and Public-Private Partnership for Infrastructure Development Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Published in January 2018 by SECURITIES COMMISSION MALAYSIA 3, Persiaran Bukit Kiara, Bukit Kiara 50490 Kuala Lumpur, MALAYSIA www.sc.com.my All rights reserved. No part of this publication may be reproduced in whole or in part or transmitted in any form or by any means, or stored in any retrieval system, or transmitted in any form or by any means (geographical, electronic, mechanical, photocopying, recording, taping or otherwise) of any nature without the prior written permission of the Securities Commission Malaysia, except for educational or non-profit purposes, provided always that acknowledgment of the source is made. 2 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations About the Report Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations is a joint publication of the Securities Commission Malaysia and the World Bank Group. The views expressed in this publication are those of the authors and do not necessarily reflect the views of the Securities Commission Malaysia and the World Bank Group. The designation of geographical entities in this report, and presentation of the material herein, does not imply the expression of any opinion whatsoever on the part of the publisher or the participating organizations concerning the legal status of any country, territory, or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. While reasonable efforts have been made to ensure that the contents of this publication are factually correct and properly referenced, Securities Commission Malaysia and the World Bank Group do not accept responsibility for the accuracy or completeness of the content and shall not be liable for any loss or damage that may be occasioned directly or indirectly through the use of, or reliance on, the content of this publication, including its translation into languages other than English. 3 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations 4 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Contents Acknowledgement 6 Glossary of Terms 7 Acronyms and Abbreviations 9 List of Figures 10 List of Tables 10 List of Boxes 10 Executive Summary 11 CHAPTER 1: INTRODUCTION 16 CHAPTER 2: BUILDING THE CASE AND CONTEXT SETTING 22 Global Infrastructure Needs and Financing Gap 23 Global Islamic Finance Development and its Current Roles in Supporting Infrastructure Needs 24 Growth Prospects of Islamic Finance in Addressing Infrastructure Gap 27 Concepts and Frameworks 28 Global and Regional Experiences – Situating the Malaysian Case 30 Applicability of Islamic Finance in Existing PPP Frameworks 34 CHAPTER 3: OFFERING VALUE-ADDED PROPOSITIONS 36 FOR ISLAMIC FINANCE Mobilizing Islamic Finance for PPPs 37 Cases for Islamic Finance in PPPs 38 Limitations and Constraints of Islamic Finance in PPPs 42 CHAPTER 4: ENABLING PPPs VIA ISLAMIC FINANCE: 44 KEY RECOMMENDATIONS Pillar 1: Political Will and Global Coordination 46 Pillar 2: Modalities & Structures 49 Pillar 3: Enabling Ecosystem 53 Pillar 4: Awareness and Capacity Building 57 Conclusion 60 References 61 Appendices 62 5 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Acknowledgement Securities Commission Malaysia (SC), together with the World Bank Group, convened a two-day conference on Islamic Finance and Public-Private Partnership (PPP) for Infrastructure Development from 8 to 9 May 2017 at SC in Bukit Kiara, Kuala Lumpur. The lead authors of this report are: Wan Abdul Rahim Kamil, Syed Azhan Syed Mohd Bakhor (SC); Jose De Luna-Martinez, Wei Zhang, Ahmad Hafiz Abdul Aziz (World Bank Group). Other contributors include Mohd Lukman Mahmud, Hanif Mohsein Mohd Fauzi (SC), and Aijaz Ahmad (World Bank Group). The team worked under the overall guidance of Zainal Izlan Zainal Abidin, Managing Director of Development & Islamic Markets, SC and Abayomi A Alawode, Head of Islamic Finance, World Bank Group. This report benefited from presentations and insightful discussions provided by the speakers (Refer to Appendices for Conference agenda and list of speakers) and participants of the Conference. We are grateful to the Public-Private Partnership Unit in the Prime Minister’s Department of Malaysia for the invaluable knowledge-sharing and discussion on PPPs in Malaysia. 6 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Glossary of Terms Ijarah A contract whereby a lessor (owner) leases out an asset to a lessee at an agreed lease rental for a predetermined lease period. The ownership of the leased asset shall always remain with the lessor. Istisna` A purchase order contract where a buyer requires a seller or a contractor to deliver or construct the asset to be completed in the future according to the specifications given in the sale and purchase contract. The payment term can be as agreed by both parties in the contract. Murabahah A contract that refers to the sale and purchase of an asset whereby the cost and profit margin (mark-up) are made known. Musharakah A partnership arrangement between two or more parties to finance a business venture whereby all parties contribute capital either in the form of cash or in kind for the purpose of financing the said venture. Any profit derived from the venture will be distributed based on a pre-agreed profit-sharing ratio, but a loss will be shared on the basis of capital contribution. Public-Private A long-term contract between a private party and a government entity Partnership to provide a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration, is linked to performance.a Shari`ah The corpus of Islamic law based on the Quran and the Sunnah. Special purpose vehicle This is the corporate entity created to manage the project. It is usually incorporated in the hosting country and in most cases the company is quoted as the project name.b Sukuk Certificates of equal value which evidence undivided ownership or investment in the assets in accordance with Shari`ah principles and concepts. 7 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Sustainable Sustainable Development Goals are a set of 17 Global Goals initiated by Development Goals the United Nations covering a broad range of sustainable issues which include reducing poverty and hunger, improving health and education, combating climate change, and protecting oceans and forests. Takaful Islamic insurance; ‘mutual guaranteeing’ through mutual support and shared responsibility whereby a group of people agree to jointly guarantee one another against a defined loss. Wakalah A contract where a party authorises another party to act on behalf of the former based on the agreed terms and conditions as long as he or she is alive. Notes: a Definitions from the PPP Reference Guide, Version 3.0 (World Bank Group et al. 2017), https://library.pppknowledgelab. org/documents/4699 b Definitions from the Private Participation in Infrastructure database. 8 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Acronyms and Abbreviations ADB Asian Development Bank APEC Asia-Pacific Economic Cooperation BOT Build-operate-transfer BTO Build-transfer-operate DCT Doraleh Container Terminal EKVE East Klang Valley Expressway EMDE Emerging markets and developing economies EPF Employee Provident Fund GDP Gross domestic product GLC Government-linked company ICIEC Islamic Corporation for the Insurance of Investment and Export Credit ICM Islamic capital market IFSB Islamic Financial Services Board I3P Islamic Infrastructure Investment Platform IOSCO International Organization of Securities Commissions IRTI Islamic Research and Training Institute IsDB Islamic Development Bank KLIA Kuala Lumpur International Airport MDB Multilateral Development Bank MIFC Malaysia International Islamic Financial Centre MIGA Multilateral Investment Guarantee Agency MP Malaysia Plan OIC Organisation of Islamic Cooperation PPIAF Public-Private Infrastructure Advisory Facility PLUS PLUS Berhad PMB PLUS Malaysia Berhad PFI Private finance initiative PPP Public-Private Partnership SC Securities Commission Malaysia SDG Sustainable Development Goal SPV Special purpose vehicle UK United Kingdom 9 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations List of Figures Figure 1: Expected Annual Investment Requirements by Sector 2014–2020 23 (at 2011 prices) Figure 2: EMDEs Infrastructure Investment Requirements: Actual Spending and 24 Investment Gap in Annual US$ billion over 2014–2020 Figure 3: Global Sukuk Issuance, US$ billion 25 Figure 4: Key Enablers for the PPP Model 29 Figure 5: Private Investment Commitments in PPPs, Across World Regions 1990–2015 32 (US$ million) Figure 6: Private Investment to Drive Growth 34 Figure 7: Summary of Key Recommendations 45 List of Tables Table 1: Four Key Pillars and Recommendations 14 Table 2: Structures of PPP 29 Table 3: PPP in Developed Markets 31 Table 4: Islamic Finance PPPs – Essence of PPP Structure and Arrangement 39 Table 5: Pillar 1 – Key Measures 47 Table 6: Pillar 2 – Key Measures 51 Table 7: Pillar 3 – Key Measures 55 Table 8: Pillar 4 – Key Measures 59 List of Box Articles Box 1: Islamic Finance Architecture Defined 47 Box 2: Malaysia’s Retail Sukuk 50 Box 3: Malaysia’s Experience in Developing Comprehensive Islamic Capital Market 54 Box 4: Khazanah Nasional Bhd – An Exemplary Role 58 10 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Executive Summary Securities Commission Malaysia (SC) – World Bank Group Conference on Islamic Finance and Public-Private Partnership (PPP) discussed and deliberated the ways to deploy Islamic project finance in PPP delivery frameworks. The latitude of the discussion covered the ecosystem needed for Islamic capital market (ICM), PPP developments and, more importantly, the identification of relevant policy, legal, regulatory and institutional interventions to attract and expand Islamic financing for infrastructure development. Additionally, a set of case studies on PPPs employing Islamic finance instruments was presented at the Conference and discussed in this report. This report aims at synthesizing the essence of the discussions deliberated at the Conference. Global demand for infrastructure financing is soaring and the emerging markets and developing economies (EMDEs) alone are experiencing a US$452 billion gap in infrastructure financing1. Global demand for infrastructure needs is well over US$80 trillion until 2030. This gives an average of US$3 trillion of investment in infrastructure per annum or slightly above 4% of the world’s gross domestic product (GDP)2. The EMDEs, by far, require much higher infrastructure investment than the developed economies. Estimates show that the developing economies need to increase spending on infrastructure from the current US$259 billion to US$711 billion per year, which translates into some US$452 billion in spending gap yearly3. These figures only concern physical infrastructure like roads, power plants, ports and railroads. In regard to social infrastructure, such as health, education and green infrastructure needs, the figures may increase by between US$170 and US$220 billion per annum4. Islamic finance is poised to play a significant role in addressing the financing gap in global infrastructure needs. Despite its relatively small share of the global financial market (currently stands at 1% of total global financial assets), Islamic finance growth has been significant over the last two decades with an annualised growth rate of 15%. The industry has grown to an estimated total assets of US$1.89 trillion in 2016 covering three main sectors, namely banking, 1 Infrastructure Investment Demands in EMDEs, World Bank, September 2015. 2 Infrastructure Investment, Private Finance, and Institutional Investors: Asia from a Global Perspective, ADB Working Paper Series, January 2016. 3 Infrastructure Investment Demands in EMDEs, World Bank, September 2015. 4 Ibid. 11 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations capital markets and takaful5. In the ICM universe, sukuk, for example, has proven its viability to support economic activities including various infrastructure projects. Global sukuk outstanding increased to a record of US$349.1 billion as of December 2016, an 8.7% increase from US$321.2 billion as at end-20156. The continued strong growth of Islamic finance presents an opportunity of untapped financing resources for infrastructure project investments through PPP. A noteworthy development is the progress that the Islamic finance industry has made from merely serving retail demands to serving corporates, including large multinational companies, and has emerged as an important focus of various international organizations and multilateral development banks (MDBs). Islamic finance offers alternative tools to support the funding needs of infrastructure projects to attract Shari`ah-compliant investors who would be constrained in investing into Shari`ah non-compliant financing projects. Islamic finance also brings in unique values to the existing PPP framework as Islamic finance not only focuses on material returns but also complements the sustainable development agenda. Shari`ah-compliant instruments in fixed income, equity or mixed asset classes are available as market vehicles to support infrastructure financing. Shari`ah is very dynamic and offers various other executable contracts beyond just debt-based instruments. Types of underlying contracts, namely ijarah, murabahah, musharakah, istisna` to mention a few, largely depend on the legal and regulatory framework of the country and contractual arrangements among the parties involved according to their risk appetite. As there is growing evidence of expansion from direct investments or financing to capital market instruments to meet infrastructure funding needs, sukuk and Islamic funds are potential means underpinned by their growing acceptance. Between 2001 and first quarter of 2014, a total of US$88.6 billion worth of infrastructure sukuk has been issued mainly from Malaysia and the GCC countries7. The growing interest in PPPs using Islamic finance structures clearly demonstrates its viability and merits to support global infrastructure needs. Several case studies were presented and discussed to feature successful applications of Islamic finance in PPP projects. Malaysia has implemented various PPP projects using Islamic finance instruments. Projek Lebuhraya Usahasama Bhd, the largest highway concessionaire in Malaysia, issued the largest sukuk of RM30.6 billion globally. In the African region, the Doraleh Container Terminal (DCT), the first ever PPP-style financing in Djibouti, is a joint venture between the Djibouti Government and the Dubai 5 IFSB Islamic Financial Services Industry Stability Report 2017, May 2017. 6 2016 Global Sukuk Market: A Record Year For Corporate Issuance, MIFC, March 2017. 7 Sukuk Growing Relevance in Infrastructure Development, MIFC Insights, October 2013. 12 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Ports World (DP World). The total cost of the project was estimated at US$397 million, of which US$133 million was in the form of equity. Meanwhile, a 25-year build-operate-transfer (BOT) contract to rehabilitate and expand the existing Queen Alia International Airport in Jordan was the first of its kind in the Middle East to be executed under the PPP-Islamic finance framework. The expansion of the Prince Muhammad Bin Abdulaziz International Airport in Madinah is another 25-year concession-based airport project under the PPP-Islamic finance model. Disparities persist between Islamic finance and its conventional counterpart. A strong political will is needed on the part of governments to facilitate the employment of Islamic finance in infrastructure development through PPPs. Various issues have to be resolved to bring Islamic finance to a level playing field with conventional finance. The aforementioned projects already affirm the feasibility and viability of Islamic finance to support global infrastructure funding needs, especially in the OIC countries. To promote vibrant growth of PPP funding via the capital markets, it is imperative to understand the gap and build the right value chain ecosystem. However, there seems to be a general lack of will in putting the appropriate ecosystem in place. Malaysia can lead in this respect as the government has enablers such as the availability of secondary sukuk market. With strong government support for Islamic finance and a robust market infrastructure for PPPs using sukuk, a favourable environment can be created. There are limitations to Islamic finance in PPP infrastructure financing, which need to be recognized in setting realistic goals for deploying such financing in PPPs. Notwithstanding such limitations, Islamic finance is no inferior in its structure when compared to conventional financing. While there are some trade-offs between the two, these do not prevent Islamic finance from providing value-added benefits to project financing. What will facilitate the success of Islamic finance in infrastructure financing, as such, is the existence of the appropriate ecosystem as earlier mentioned, as well as a level of acceptability and readiness by issuers to employ it in project financing. Some key recommendations deemed vital for the growth and development of PPPs using Islamic finance are grouped under four broad pillars. 1) Political leadership at national and global levels; 2) Empowering Islamic finance modalities, structures and values to stay relevant; 3) Capital markets ecosystem – building blocks to ensure the dynamic progress of Islamic finance in PPPs; and 4) Boosting efforts at diffusing Islamic finance knowledge and awareness across political, economic and social spectrums. 13 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 1: Four Key Pillars and Recommendations PILLARS Political Will Modalities & Enabling Awareness and and Global Structures Ecosystem Capacity Building Coordination RECOMMENDATIONS Governments and Regulatory The relevant The relevant MDBs to support authorities and stakeholders and stakeholders and the development financial market authorities to authorities to of facilitative players to develop improve market increase awareness infrastructure sukuk market liquidity for large and technical architecture for for long-term infrastructure understanding Islamic finance. issuances to match projects through of both PPPs and the long-term the development Islamic finance yield profile of of essential to attract players infrastructure building blocks for and institutional investments. a well-established investors as well ICM. as other important stakeholders. MEASURES: NATIONALLY Establish an Structure the tax Facilitate and Knowledge- enabler or a and fiscal system moderate specific sharing programs catalyst that can to create a level working groups with issuers and develop a practical playing field with on developing investors on framework (or the conventional ICMs and broaden infrastructure guidelines) to system. the pool of financing and deploy Islamic institutional investments and finance in investors with the long-term infrastructure long-term benefits for society. financing. investments horizon. MEASURES: REGIONAL Incorporate Develop and MDBs to Increase OR GLOBAL Islamic finance facilitate issuance collaborate institutional in multilateral of infrastructure in a more cooperation financial sukuk (including comprehensive between MDBs framework as a retail) manner through roadshows viable alternative. internationally. with private and promotional international activities including investors to get research and buy-in for Islamic publication. finance. 14 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations [From left to right]: Jose De Luna Martinez, Lead Financial Sector Specialist, World Bank; Abayomi A Alawode, Head of Islamic Finance, World Bank; Laurence W Carter, Senior Director, Public-Private Partnerships, World Bank; Tan Sri Dato’ Seri Ranjit Ajit Singh, Chairman, Securities Commission Malaysia; Dato’ Ahmad Fairuz Zainol Abidin, Deputy Chief Executive, Securities Commission Malaysia; Zainal Izlan Zainal Abidin, Managing Director, Development and Islamic Markets, Securities Commission Malaysia; Dr Walid Abdelwahab, Director, Infrastructure Department, Islamic Development Bank. 15 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations CHAPTER 01 Introduction 16 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations T he Organisation of Economic Cooperation long-term capital, emerging and developing and Development (OECD) estimates that markets should accelerate development of globally, US$80 trillion would be required their local currency domestic bond and/or for investments in public infrastructure such as sukuk market. This requires putting in place road, rail, telecommunication, electricity and the ecosystem and enabling environment for a water (without taking into account seaports, deep and liquid bond and/or sukuk market to airports and social infrastructure) by 2030. flourish. Meanwhile, the Asian Development Bank (ADB) estimates that Asia needs to invest Given the potential of Islamic finance to US$8 trillion in national infrastructure over the support infrastructure development in decade between 2010 and 2020. Traditionally, developing countries, the SC, together with investments in infrastructure are financed the World Bank Group, convened a conference, using public sources. However, severe budget themed “Islamic Finance and Public-Private constraints faced by the public entities have led Partnership for Infrastructure Development”. to increased involvement of private investors in The Conference focused on ways to deploy the provision of infrastructure in developing Islamic project finance in PPP delivery countries. frameworks and identify the relevant policy, legal, regulatory and institutional interventions Against this background, the use of Islamic necessary to motivate both public and private finance for infrastructure development has sectors to use Islamic financing for infrastructure been receiving increased attention in the past development. few years. The Islamic capital market (ICM) has the means and ways to contribute towards the The Conference was the first collaboration required funding and capital needs. Sukuk, between SC and World Bank Group on an which has gained significance acceptance as a annual engagement involving Islamic finance. source for long-term financing, can be A total of 280 participants attended comprising effectively applied to support the infrastructure development practitioners, policy makers, financing needs. There are varieties of sukuk regulators, as well as stakeholders involved structures using different Islamic contracts such in Islamic finance and infrastructure. Panel as ijarah, murabahah and wakalah or a sessions with industry leaders and experts combination thereof that are able to provide discussed corporate approaches in mobilising customized solutions. Sukuk is also backed by Islamic finance for infrastructure needs. There real economic activity as well as has the ability was also a closed-door roundtable session which to tap a wider investor base from both Islamic further elaborated technical matters, workable and conventional spectrum. To help mobilize solutions and possible recommendations. 17 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations This post-Conference report, Islamic Finance 1. The national level highlights possible and Public-Private Partnership: Viability, solutions and tools available to a country Opportunities and Recommendations is a joint domestically; and publication of the SC and the World Bank Group that captures the salience and essence 2. The regional or global level highlights of the two-day conference. It discusses and possible solutions available to a country clarifies the discussions and debates among when it interacts with actors beyond its speakers during the respective sessions. In borders. addition, it also incorporates the relevant discussions during the question and answer The details of the proposed measures are derived period at the end of each session. from an overall assessment of the content of the Conference, authors’ interpretation of the This report also presents recommendations speakers’ presentations and deliberations, and based on the deliberations during the two-day a careful synthesis of ideas embedded in their Conference, complemented by the authors’ speeches. research. For each recommendation, there are two-level measures proposed: “A critical imperative for infrastructure financing is to successfully bridge the gap between the demand for capital and the supply of it. The Securities Commission Malaysia has long recognized the promising potential of the Islamic capital market as an alternative avenue for large- scale long-term fundraising. In this regard, Sukuk, given their asset- based and risk-sharing nature, are particularly apt for infrastructure financing..” – Tan Sri Dato’ Seri Ranjit Ajit Singh, Chairman, Securities Commission Malaysia 18 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations “At the World Bank Group, we strongly believe that Islamic finance has an important role to play in addressing the development challenges facing our client countries. The World Bank Group’s involvement in Islamic finance is directly linked to our objectives of reducing poverty, promoting financial sector development, broadening financial inclusion, and building financial sector stability and resilience in client countries..” – Laurence Carter, Senior Director, Public Private Partnerships, World Bank 19 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations 20 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations 21 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations CHAPTER Building the Case 02 and Context Setting 22 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Global Infrastructure Needs FIGURE 1: Expected Annual Investment Requirements by Sector 2014–2020 and Financing Gap (at 2011 prices) Global demand for infrastructure needs is Water and Sanitation well over US$80 trillion until 2030, of which 7% 51% is needed for maintenance while the Electricity 39% remaining 49% is for capital expansion. This infrastructure gap was highlighted by many Telecommunication speakers during the Conference and it provides 23% the context setting for the role of Islamic finance in supporting infrastructure investment requirements, particularly in developing countries. Transport The emerging market and developing 31% economies (EMDEs) require higher infrastructure Source: Infrastructure Investment Demands in EMDEs, World Bank, investment needs than the developed Sept 2015 economies. Estimates show that the developing economies need to increase spending on three sectors have a greater percentage in infrastructure from the current US$259 billion maintenance cost than capital expenditure. to US$711 billion per year, which translates to about US$452 billion in spending gap yearly8. This gap needs to be addressed due to the These figures only concern physical infrastructure linkage between infrastructure development such as roads, power plants, ports and railroads. and economic growth. Several speakers Insofar as social infrastructure is concerned like emphasized this linkage when they health, education and green infrastructure underscored the importance of infrastructure needs, the figures may increase to between development to sustain economic growth. US$170 to US$220 billion per annum9. The Infrastructure development has been observed, electricity and transportation sectors require across the world, to have raised GDP by driving 70% of the total expected annual investment economic activities and providing basic services requirements by sector. With the exception to millions of people. This is relevant for both of the telecommunication sector, the other advanced and developing economies. 8 Infrastructure Investment Demands in EMDEs, World Bank, Sept 2015. 9 Ibid. 23 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Global Islamic Finance Despite the Islamic finance industry’s relatively small share of the global financial market Development and its (currently stands at 1% of total global financial Current Roles in Supporting assets), its growth has been significant over the Infrastructure Needs last two decades with an annual growth rate of 15%. The industry has grown to estimated Narrowing the infrastructure investment gap total assets of US$1.89 trillion in 2016 covering through Islamic finance (structured into the all the three main sectors, namely banking, PPPs) will support infrastructure investment capital markets and takaful10. In the ICM needs in the existing or potential markets. universe, sukuk, for example, has proven its Islamic finance’s ability to attract new sources viability to support economic activities including of funding, that are otherwise not fully tapped various infrastructure projects. Global sukuk by the conventional structure, is gradually outstanding increased to a record US$349.1 emerging as an important value proposition billion as of December 2016, an 8.7% increase that strengthens the raison d’être for employing from US$321.2 billion as at end-201511. The Islamic finance in PPPs. total global Islamic assets under management FIGURE 2: EMDEs Infrastructure Investment Requirements: Actual Spending and Investment Gap in Annual US$ billion over 2014-2020 800 Actual Requirement 700 Gap 600 500 400 300 200 100 0 EAP* SAR LAC SSA ECA MENA Total Source: Infrastructure Investment Demands in EMDEs, World Bank, September 2015 Note: (*) EAP excludes China. 10 Islamic Financial Services Industry Stability Report 2017, IFSB, May 2017. 11 2016 Global Sukuk Market: A Record Year for Corporate Issuance, MIFC, March 2017. 24 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations (AUM) stood at US$70.8 billion, with the number of Islamic funds totaling 1,53512. The “Mainstreaming the continued strong growth of Islamic finance upstream that is making presents an opportunity of untapped financing a systematic effort at resources for infrastructure project investments through PPPs. reforms that will unlock opportunities of projects Many speakers at the Conference affirmed and expand financing and Malaysia’s position as a recognized leader in Islamic finance. Malaysia remains as a leading delivery options over time.” global sukuk market and the country is also – Aijaz Ahmad, Senior Specialist, home to the second largest Islamic funds Public Private Partnerships, World Bank market. A report quoted, from 2001 till 1H2013, Malaysian domiciled infrastructure sukuk accounted for 71.01% of all infrastructure sukuk issuances followed by Saudi Arabia FIGURE 3: Global Sukuk Issuance, US$ billion 131.2 119.7 118.8 85.1 74.8 66.1 45.1 46 25.5 28 20.6 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: MIFC 12 Islamic Fund: Gearing up, MIFC, May 2017. 25 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations at 16.21% and the United Arab Emirates at • Tax neutrality and incentives are to be 11.27%13. The SC, in its Welcome Remarks at devised with the aim of supporting the the Conference, highlighted that the utilization growth of Islamic finance. of market-based financing is one way through which Malaysia has managed its infrastructure Islamic finance has been used and applied in development needs, with the first PPP project various economic activities, from small scale launched more than three decades ago. These projects to large infrastructure projects. A projects were supported by the long-term noteworthy development is the progress that financing capabilities of Malaysia’s established the Islamic finance industry has made from and vibrant bond market – the third largest in merely serving retail demands to serving Asia measured by percentage of GDP. This has corporates, including large multinational contributed to more than half of the private- companies (beyond Muslim majority sector infrastructure investments since the jurisdictions). It has emerged as an important early 1990s. In developing its Islamic capital focus of international organizations and markets, SC identified key building blocks for multilateral development banks (MDBs). The the effective functioning of an ICM: Islamic Development Bank (IsDB) has been very instrumental in supporting infrastructure • The regulatory framework and financing activities, including PPP projects, in its standards are to be benchmarked 57 member countries across sectors that include against international standards, e.g. power, energy, transport and telecommunications International Organization of Securities as well as social infrastructure. The IsDB and Commissions (IOSCO) and Islamic the ADB have also set up Asia’s first major Financial Services Board (IFSB). multi-country Islamic infrastructure fund dating back to 2009. • Market infrastructure is to be put in place, e.g. commodity murabahah Islamic finance offers alternative tools to platform and credit rating agencies. support the funding needs of infrastructure projects to attract Shari`ah-compliant investors, • The Shari`ah governance framework who would be constrained in investing into needs to include the establishment of Shari`ah non-compliant financing projects. a Shariah Advisory Council for ICM, in Islamic finance, as an alternative funding addition to the requirement to register instrument, also brings unique values to the Shari`ah advisors with SC at the industry existing PPP framework as it not only primarily level. focus on material returns but could also complement the United Nations’ Sustainable Development Goals (SDGs). 13 Sukuk Growing Relevance in Infrastructure Development, MIFC, October 2013. 26 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Growth Prospects of Islamic Islamic finance could be the key funding source in developing infrastructure. Products, such as Finance in Addressing sukuk, that are generally asset-based and risk- Infrastructure Gap sharing instruments could further contribute to the development of infrastructure by creating Developments in the capital market play an a facilitative approval process, greater cost important role in addressing infrastructure gap. efficiency, and less time to market. It is also Reforms in capital requirements for financial observed that Islamic finance is appealing to institutions and insurance companies have everyone as it can bring all backgrounds of contributed strongly to the reduced availability investors and varieties of transactions together. of public and private capital for infrastructure development. As such, over the years, Islamic The challenge, nonetheless, is an environment infrastructure investment has attracted greater that still adopts the same thinking perspective involvement by sovereigns, corporate and associating Islamic finance with debt institutional entities bearing different Shari`ah- instruments, although in reality, Islamic finance compliant structures, volume and tenures. is beyond that. Moreover, Shari`ah is very Such investors seek opportunities that match dynamic and suitable to be applied anytime their liabilities with long-term infrastructure and anywhere. It is very rich when it comes development investments, helping to add to availability and executable contracts are dynamism to the industry. not limited to just debt-based instruments. Infrastructure sukuk, for instance, can be However, the market is still a niche and an structured using various types of Shari`ah underdeveloped area in Islamic finance. It contractual principles; among the foremost remains as one of the important areas to be principles utilized are musharakah, ijarah and served by the industry, as widely agreed in the murabahah. Collectively, these three structures Conference. Significant opportunities exist to accounted for more than 79% of all issuances exploit this gap and further develop Islamic during 2H2010 till 1H201314. infrastructure funding, given the huge infrastructure spending currently taking place Global Islamic finance assets are expected in many emerging markets including those to grow and exceed US$3.25 trillion by currently served by Islamic finance. In addition, 202015. The outlook for the infrastructure or infrastructure bodes well as an asset class for construction sector in key growing Islamic Islamic finance with its emphasis on real sector finance markets, e.g. Asia, the GCC and funding. The growing demand for ethical Africa, is indeed promising, particularly in areas investment options in the global financial markets such as transportation, power, water, utilities, also contributes to the prospect of this segment. healthcare, housing, and education. There 14 Sukuk Growing Relevance in Infrastructure Development, MIFC, October 2013. 15 State of the Global Islamic Economy 2015/2016, Thomson Reuters, October 2016. 27 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations exists tremendous opportunity for Islamic UK’s case suggests, where PPP is termed as PFI. infrastructure investment, with its ethical The two variants are the most commonly used and alternative funding base, to serve such terms across the globe today. infrastructure financing needs globally. This, however, requires active roles from stakeholders PPPs are one of the financing arrangements to ensure that the enabling environment is in that have contributed significantly to global place to support funding growth in the area. infrastructure financing. To an extent, PPPs More importantly, efforts need to be directed are so synonymous with infrastructure at harnessing private investors’ participation in development that more and more countries, infrastructure funding segments. especially those with little or no experience with PPPs in meeting their infrastructure tasks, have begun to embrace the PPP model. The Concepts and Frameworks governments of these countries are exploring the potential of the model and have taken PPPs emerged following concerns over the definitive steps to establish policies, pipelines, level of public debt, which grew enormously resources and partnerships with private sector across the developed world during the macro- providers.16 Table 2 distinguishes three types of economic dislocation of the 1970s and 1980s. existing PPP framework. However, the more fundamental reason that had sparked PPPs was the fact that many In their ideal form, PPPs are long-term governments could not provide basic amenities relationships between the public and private and effective public services for their citizens. sectors; the projects last seven years and This was due to debt crises and water-tight beyond. It is imperative to underscore the budgets that crippled many governments, fact that PPPs allocate the sharing of risks especially during the last two decades before and rewards between the government and the millennium. Private investors were then the private partners. Although the exact risk- invited through a process to form partnerships sharing formulae may vary from one case to with the government to provide, finance and another, the belief that only the private sector maintain these public services. The then John bears all (or most of) the risks is not necessarily Major led government in the United Kingdom true. (UK), for instance, introduced the Private Finance Initiative (PFI) in 1992. It was the first Any successful PPP will involve a good systematic program aimed at encouraging combination of political support, enabling PPPs. The specific names do indeed vary, as the frameworks, expertise, project prioritization 16 Public-private partnerships and the global infrastructure challenge: How PPPs can help governments close the “gap” amid financial limitations, EY, 2015. 28 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 2: Structures of PPP Structures Characteristics Concession • Contracting authority entrusted to a private entity. • The private entity finances, develops, operates and maintains the delivery of services or infrastructure (which were otherwise performed by the public sector/government). • The private entity obtains its revenue directly from end users (the public). • Ownership of assets remains with the public sector. Contractual PPP • A public and a private entity enter into a contractual agreement to deliver public services or infrastructure projects. • The private entity is to fund the project. • The public entity will pay the private counterpart based upon usage volumes or demand over the duration of the contract. • Ownership of assets remains with the public sector. Institutional PPP • The public sector, i.e. the government, has significant control over the development and delivery of the service or infrastructure through its shareholding in the special entity. • Ownership, risks and rewards are shared between the public and private sectors. Source: SC and World Bank and preparation as well as deal flow and FIGURE 4: Key Enablers for the PPP Model standardization of agreements. The essentials among these parameters are political support and enabling frameworks that will often result Policy in the immediate availability of the rest of the parameters. Governments need to devise a program that suits their respective domestic conditions where PPP projects do not only Investments KEY Markets ENABLERS accelerate economic growth under a sound fiscal policy but, more importantly, achieve national socio-economic objectives. A strong political will and support will facilitate the right Legal enabling frameworks to be in place, namely legal, investment, operational and capital Source: Yong Hee Kong’s enabling framework market frameworks. 29 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Below are a few general reasons why governments 4. Accounting treatment of PPPs as off- embrace PPPs: balance-sheet: Governments usually have limited fiscal space which determines 1. Private sector’s delivery of public their debt capacity and liabilities. For a services: The private sector has, over the sovereign entity, this fiscal space is a years, been able to maintain an enviable function of domestic legal requirements standard in project management and or international regulations as well as delivery. The reverse, however, is usually market constraints. Therefore, PPPs help the case in some public sectors, which governments enter into commercial are often caught up in public debt, contracts with little or no financial mismanagement and lack of effective liability as such liability is effectively controls. PPPs then are seen as effective shifted to a private set-up (minority tools that can steer the effective subsidiary or special vehicle entity). provision of public services. 5. Incentives for innovation: In making 2. Budget constraint: Many debt-ridden PPPs successful, governments often EMDEs see PPPs as viable options offer incentives such as tax relief to to provide public services, especially the private sector entities in order to in trying to achieve socio-economic sustain their interest and to mitigate objectives under a tight budget scenario. their risks. In return, the private sector With private capital participation (often entities reinvent and introduce new guaranteed by MDBs), governments can technologies, i.e. know-how and strike the balance between providing management practice, to deliver more critical infrastructure and simultaneously effective public services and high quality spending on other prioritized infrastructure. developmental projects. 3. Private sector’s know-how: PPPs allow Global and Regional for capitalizing on the private sector’s Experiences – Situating the technical know-how and sectorial Malaysian Case expertise. As private sectors are driven by strong and often stiff competition, PPPs are complex and there are no unique their level of knowledge and experiences features of PPPs across the globe. The guarantee their potential maximisation complexities in understanding PPPs could partly in any sector which they are involved. have arisen as a result of their misconception. Such a characteristic can well fill the gap Many governments at times do not understand in the public sectors’ lack of technical why and how to pursue PPPs. In some know-how and insufficient sectorial developing countries, PPPs are seen as a exposure. burden-shift approach with governments 30 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations pushing all the risks to the private sector in The developing PPP markets comprise the top delivering infrastructure and public amenities. five performers and the rest of the EMDEs. The However, these governments often fail to top five performers are China, Brazil, India, provide a sound and functioning legal Mexico and Turkey, whose total combined framework to govern such PPPs, only to bear investment commitments in infrastructure PPPs negative and costly consequences later. account for 60% of the total infrastructure PPPs’ investments in all EMDEs.17 There are at least two major groups of PPPs: the established and the developing PPP markets. Latin America is constantly learning from Among those countries with established PPP valuable PPP experiences, with some countries markets are the UK, Australia and Canada. in the region having had a PPP program These countries have been continuously for more than two decades. Nevertheless, nurturing and stimulating their respective many of these programs have been troubled PPP model through innovation and necessary by poor contract management and a large reforms against a backdrop of changing market number of renegotiations during the term. conditions as shown in Table 3. This has triggered governments to develop PPP legislation and procurement practices. TABLE 3: PPP in Developed Markets UK Australia Canada The UK, the elder statesman Australia was one of the world’s Canada continues to be a model of PPPs, has subjected the PFI pioneers in using and developing for steady deal flow, with an model to deep and forensic the PPP model. However, its active financial market and review in recent years, resulting PPP market today faces highly a track record of on-budget in the improved “PF2”. Although challenging financing conditions. and on-time delivery. Key to the market is still adjusting to the This is largely a result of its Canada’s success has been new approach, it is telling that small amd constrained market. unconditional government PPPs weathered the storm and In contrast with other markets, support at all levels, including continue to be actively supported long-term debt solutions have providing dedicated funding by Government, profiteering and not returned. This lack of and financial mechanisms, transparency. competition to commercial pioneering standardization and banks – combined with a lumpy undertaking efficient collaborator projects pipeline – means that procurement. the full potential of institutional investment has not been harnessed. Source: EY, 2015 The State of PPPs Infrastructure Public-Private Partnerships in Emerging Markets & Developing Economies 1991-2015, 17 World Bank-PPIAF Report, June 2016. 31 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Africa’s PPPs have seen some progress despite Asia, as a whole, promises great potential for several significant constraints, namely limited more robust PPP infrastructure development. financial markets, inadequate legal and This potential is based upon the region’s rapid regulatory frameworks, an absence of technical economic growth (especially the East Asia skills within government agencies, and political Pacific region), where strong economic growth and national risks. Notwithstanding these must be supported by substantial and reliable constraints, the demand for infrastructure infrastructure. Nonetheless, financing proves to across Africa remains significant and many be one of the biggest challenges and the role African governments acknowledge PPPs as of private capital is indispensable in addressing part of the solution. Such a positive attitude, the potential financing bottlenecks across the combined with support for the PPP model from region. With the exception of China, many MDBs such as the World Bank and the IsDB, is of the emerging Asian economies still rely driving infrastructure PPP projects across Africa. very heavily upon regional and global MDBs This can be observed in the transportation to finance their critical infrastructure projects. sector, where real economic values can be Moving forward, greater efforts need to be generated. put in place to encourage regional economies FIGURE 5: Private Investment Commitments in PPPs, Across World Regions 1990 – 2015 (US$ million) 10,000 LAC: Latin America and the Caribbean EAP: East Asia and Pacific MENA: Middle East and North Africa 5,000 LAC EAP US$ million 1,000 Europe & Central Asia Sub-Saharan Africa 100 South Asia MENA 100 1 Source: PPI database, World Bank 32 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations to adopt PPPs. This includes particularly This was made evident by the issuance of the institutional PPPs to tap and leverage the growing Guideline on Privatization two years later and capital markets development in the region. the Master Plan on Privatization in 1991, which officially marked Malaysia’s departure towards It is in this regard that Malaysia’s experience a full-fledged market economy. with PPPs is worth looking at. Undoubtedly, Malaysia’s PPPs’ evolution has benefited from Between 1983 and 2009, about 500 privatized political will and a strong institutional set-up projects had been implemented nationwide. that collectively provide a sound framework to Among the signature infrastructure projects launch PPPs forward. There are drawbacks and were the North-South Highway, the Light Rail improvements in many aspects but the country Transit (LRT), the Tanjung Pelepas Port and the is on a strong footing to move forward with Kuala Lumpur International Airport (KLIA). great potential for success. These privatized projects had contributed to capital and operational expenditure to The private sector has been long involved the tune of US$50.16 billion and US$2.42 in the provision of public goods and services billion respectively.18 Further, following the in Malaysia. It dates back to 1981 when the privatization of 58 government agencies, about Malaysia Incorporated Policy was introduced 113,440 civil servants were transferred to the to foster cooperation between the public and private sector, hence significantly reducing private sectors under the rubric of Malaysia the government’s administrative expenditure. as a corporation. The main idea was really to All these savings had made it possible for get the private sector’s participation in the the government to redistribute its limited economy, particularly in developing the critical development resources to more needy sectors, infrastructure to fuel economic growth. such as the education, health and poverty eradication programmes. Thus, there was little surprise when, in 1983, a dedicated Privatization Policy was launched The relative success with privatization has to complement the government’s initiative convinced subsequent administrations to to increase private sector participation in continue with a growth model that is driven by the country’s economic development. The the private sector. The government then was government further refined its objectives fully committed to implement the alternative through the policy. Apart from reducing the procurement method to complement the financial and administrative burden of the privatization approach. The Ninth Malaysia government, the policy was expected to Plan (9th MP) saw the introduction of PFI with improve skills and productivity that would in the specific objective to deliver infrastructure turn accelerate economic growth through developments and maintain them. Under minimal involvement of the public sector. In the 9th MP, between 2006 and 2010, 22 other words, Malaysia was gradually allowing PPP projects worth US$3.74 billion had been the market to play a bigger role in the economy. implemented. These figures grew almost six-fold Figures are based on 2010 US dollar exchange rate. 18 33 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations to US$19.53 billion to finance 52 PPP projects Applicability of Islamic during the 10th MP from 2010 until 2015. Finance in Existing PPP PPPs in Malaysia are only expected to grow Frameworks stronger in years to come. As the current administration embarked on the Economic It is clear at this juncture that PPPs are simply Transformation Program (ETP), launched another type of project financing. What makes toward the end of the 10th MP in 2010, the them unique is their structure that is built upon government has been aggressive in its efforts a relationship between public and private to scale up the country’s infrastructure facilities. sectors. This relationship is neither commercial Combined with the Government Transformation nor functional. It is, however, strategic as both Program (GTP) launched in early 2009, the sectors work toward achieving their respective Malaysian government’s commitment toward objectives through serving and delivering infrastructure development will be robust during infrastructure to the public. Risks are allocated the current 11th MP, where the government to the partners in a manner that best suits their targets nearly 10% of private investment as a strengths and capabilities. share of GDP growth expenditure. FIGURE 6: Private Investment to Drive Growth GDP Growth by Expenditure (%) Public investment Private investment Public consumption Private consumption Exports Imports 0 2.5 5 7.5 10 % of GDP growth Source: Economic Planning Unit (EPU) 34 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Employing Islamic finance in the PPP structure need not necessarily be material ones, such is no different than employing its conventional as profits, but also in terms of knowledge and counterpart. The infrastructure projects to be experiences. The Malaysian experience with financed have to have all the basic fundamentals, the Express Rail Link (ERL) project, for instance, such as pricing, ownership, securities, etc. reveals that through PPPs, the government Bankability of the projects is imperative and full not only enjoys financial savings but ERL disclosure of the information about the projects Sdn. Bhd., the private partner, learns from must be communicated clearly to potential managing and maintaining an effective public Islamic finance investors. There are some service. In the case of the Madinah Airport PPP particularities about the infrastructure projects project, the Saudi government benefits from that Islamic finance investors, namely Islamic the knowledge and expertise offered by the banks and project companies with Muslim private partner to pursue the project, which shareholders, will pay close attention to. These the former did not initially have to enable it to include Shari`ah-compliant requirements on proceed successfully with the project. all transactions relating to the infrastructure project development. PPPs are long-term in nature where the private partners are usually expected to shoulder the Some critics have argued that employing Islamic financial risks, hence the issue of liquidity finance in PPPs can raise documentation costs matters. In fact, one of the obstacles that but such criticism may no longer valid today as hinder Islamic finance investors in undertaking experiences from different parts of the world, infrastructure PPPs is the market illiquidity. namely the Gulf region and Europe, suggest an insignificant difference in financing costs Therefore, this issue may open up an opportunity between Islamic finance and conventional for governments to leverage institutional financing. Big law firms nowadays have become investors seeking Islamic investments on more familiar with the terms compared to a long-term basis as potential private partners decade ago. in infrastructure PPPs. Institutional investors in Malaysia, such as Tabung Haji (Hajj Fund), What is revealing about PPPs is the risk Permodalan Nasional Bhd and the Employee structure. The shared risks and rewards in PPPs Provident Fund (EPF), are among a few make Islamic finance a natural good fit to potential private partners that can bring the infrastructure PPP financing. The value creation needed capital to infrastructure PPP projects in these infrastructure PPPs propose, not only to the country. As many global experiences have the clients (the public) but also to both public shown, long-term infrastructure PPP projects and private partners involved, perfectly match are more likely to suit the investment and risk with that of Islamic finance. These values appetite of these institutional investors. 35 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations CHAPTER Offering Value-Added 03 Propositions for Islamic Finance 36 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Mobilizing Islamic Finance for PPPs The key question asked throughout the two- day Conference was: What value does Islamic finance bring to PPPs? It has been discussed “What is important in Chapter 2 that PPPs are simply another is the commitment of type of project financing that build upon equal partnerships between the public and stakeholders, and that private partners. There are immediate value has to be very much in propositions coming out of such partnerships, place. The stakeholders, e.g. private sector’s efficiency, knowledge and including the regulators, technical know-how transfer, efficient resource allocation and high quality service delivery. In government, private sector, short, the values derived from PPPs are the academia, Shariah scholar indirect result of the way PPPs are financially and other key participants structured through conventional means. Thus, when Islamic finance is available, it is within the ICM ecosystem expected that Islamic finance is indifferent with have to play their roles conventional counterpart in delivering similar together to exchange values in infrastructure financing. ideas so that all relevant Islamic finance brings a distinctive type of parties are aware of the investors to the fore: the Shari`ah-compliant various challenges faced investors who have shied away from conventional by different parts of the markets and untapped funds that are readily available for infrastructure projects. A Shari`ah- ecosystem and address compliant investor in an infrastructure PPP is an them efficiently.” investor who accentuates the ethical – Zainal Izlan Zainal Abidin, Managing requirement and transparency level of an Director, Development and Islamic investment. The nature of the investment, the Markets, Securities Commission way risks and rewards of the investment are Malaysia being handled and the overall social balancing effects resulting from the investment are matters of great importance. 37 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations A Shari`ah-compliant investment does not only case studies were presented and discussed require an investor to be guided by permissible to highlight successful applications of Islamic activities but, equally important, it requires finance in PPP projects. Conference participants clarity of conduct and documentation at every were made aware of notable PPP projects that stage of the investment to avoid uncertainty have already using Islamic finance instruments and misinterpretation between contracting globally, funding various types of infrastructure parties. Islamic finance, as a funding instrument projects through banking and capital market then, adds value to the existing process chain products. It is important to note that PPPs may in the PPP framework as it not only focuses be financed by a combination of Islamic and on material returns but also encourages risk- conventional finance contracts. sharing in economic transactions and activities that benefit the people. The experience of Malaysia’s North South Expressway was presented during the Conference, The emphasis in Islamic finance on ethics can focusing on the largest sukuk issuance of play a catalytic role in driving the investment RM30.6 billion globally, dubbed Malaysia’s community to rethink the issue of governance. single largest sukuk issuance. The sukuk was Over the years, there has been much discussion issued by PLUS Bhd (PLUS), the largest highway about getting corporate governance right and concessionaire or BOT operator in Malaysia enhanced in project financing. Employing and the largest toll expressway operator in Islamic finance in PPPs really requires the objectives of the structure to be carefully Southeast Asia. The DCT project in Djibouti specified to achieve the desired goals (socio- was also presented. It was the first PPP-style economic) of the project. The presence of financing in Djibouti through a joint venture a Shari`ah adviser to oversee the Shari`ah between the Djibouti Government and the compliance of the project serves as a layer Dubai Ports World (DP World). The total cost of which enhances the practice of governance the project was estimated at US$397 million, through transparent information disclosure of which US$133 million was in the form of of the project and strict adherence to ethical equity. The partnership alleviated pressure on business conduct. the country’s fiscal position and, at the same time, created new jobs for the population and spurred economic growth. Cases for Islamic Finance in PPPs There were several mentions of the 25-year BOT contract to rehabilitate and expand the The growing interest in PPPs using Islamic existing Queen Alia International Airport finance structures clearly demonstrates the in Jordan throughout the Conference. The viability and merits of Islamic finance in project was the first of its kind in the Middle supporting global infrastructure needs. Several East to be executed under the PPP-Islamic 38 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations finance framework. The project, which was Table 4 summarizes six examples of PPPs using co-financed by the International Finance Islamic finance instruments to illustrate that Corporation (IFC) and the IsDB, generated Islamic finance PPP is implementable although, much higher than expected annual traffic for some, it may involve a long and arduous growth (7.7% instead of the projected 4.7%). journey. A number of Islamic finance structures The expansion of the Prince Muhammad Bin used in a variety of infrastructure PPPs are Abdulaziz International Airport in Madinah available in the World Bank-IsDB report, entitled is another 25-year concession-based airport Mobilizing Islamic Finance for Infrastructure project under the PPP-Islamic finance basis. Public-Private Partnerships, which provides a The concession has been structured as a build- clear picture on Islamic finance applications in transfer-operate (BTO) through an Islamic PPPs.19 financing package which consisted of a three- year US$436 million commodity murabahah equity bridge facility. TABLE 4: Islamic Finance PPPs – Essence of PPP Structure and Arrangement Country PPP Description PPP Arrangement Jordan The Queen Alia Airport is Jordan’s The concession agreement requires that the main international airport and was ownership of the project remain with the the first successful airport using PPP in government. As Shari`ah allows usufruct the Middle East. Airport International right over the lease asset as the underlying, Group (AIG) was awarded a 25-year this requirement can be accommodated by BOT contract to rehabilitate the existing Shari`ah. airport and expansion of the terminal. This airport was financed in two phases: the initial financing and financing for expansion. In both phases, Islamic financing was used. The Islamic financier (the IsDB Group) provided financing of US$100 million through a leasing mode. The publication issued in 2017 is a joint product of the World Bank Group (the Infrastructure, PPPs and Guarantees (IPG) 19 Group; and the Finance and Markets Global Practice’s Islamic Finance Unit) and the IsDB. 39 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 4: Islamic Finance PPPs – Essence of PPP Structure and Arrangement (continued) Country PPP Description PPP Arrangement Djibouti The Doraleh Container Terminal (DCT) The transaction combines four Islamic is a joint venture between the finance principles/instruments: musharakah, Djiboutian Government and the Dubai istisna`, ijarah, and takaful. Through the Ports World (DP World). musharakah agreement, the special purpose vehicle (SPV)and the project financiers agree DP World has a 30-year concession to procure assets and commit to making to operate DCT and embarked upon respective capital contributions according to construction of a new container the debt-to-equity ratio of the financing terminal at a total cost of US$397 plan. Through the istisna` agreement, the million. The project has received parties appoint the SPV as their agent to syndicated financing from a number procure and construct the container terminal of lenders including the African and ensure delivery of assets at the end of Development Bank, Standard the construction period. The lease agreement Chartered, Dubai Islamic Bank and the (ijarah) allows the project financiers (the IsDB. lessor) to lease their co-ownership interest in the project to the SPV (the lessee) in The World Bank’s Multilateral exchange for periodical rental payments Investment Guarantee Agency (MIGA) linked to a floating benchmark. issued guarantees totalling US$427 million – US$5 million for DP World’s The Islamic Corporation for the Insurance equity investment in DCT and US$422 of Investment and Export Credit (ICIEC), a million for Islamic project financing member of the IsDB Group, participated in – against the risks of restrictions on this transaction by providing retakaful for currency transfers, expropriation, US$50 million to MIGA. breach of contract, war and civil disturbance. Saudi Arabia The project involved rehabilitation and During the construction stage, the Islamic expansion of the Prince Mohammad financiers used istisna`, under which the Bin Abdulaziz International Airport SPV transferred certain rights contained (Madinah airport) in Saudi Arabia under the BTO concession agreement to under a PPP model. The project was the financiers. In the subsequent stage, designed to increase capacity from five the financiers gradually transferred the million passengers per year to eight ownership of asset to the SPV against rental million passengers per year initially, payments through a lease agreement with with the potential for further expansion a put and call option for sale and purchase to 16 million passengers per year. undertaking. The concession was awarded to the TIBAH Consortium, comprising Al Rajhi Holding (Saudi Arabia), Saudi Oger Ltd (Saudi Arabia), and TAV Airports Holding (Turkey). 40 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 4: Islamic Finance PPPs – Essence of PPP Structure and Arrangement (continued) Country PPP Description PPP Arrangement Malaysia The East Klang Valley Expressway The project was initiated by the Ministry (EKVE) is a 36.16km closed-toll, dual- of Works of the Government of Malaysia. lane expressway between Bandar Sungai The financiers established an SPV, named Long and Ukay Perdana. The EKVE EKVE Sdn Bhd then became the agent of forms the eastern segment of the Kuala the sukukholders pursuant to the agency Lumpur Outer Ring Road (KLORR), agreement. serving as an orbital system of ring roads around the greater Kuala Lumpur During the tenure of sukuk murabahah, area. the SPV made payments on the periodic payment date and paid the nominal value The project was financed by a sukuk of sukuk murabahah on the maturity date structure, an Islamic medium-term of the sukuk murabahah, pursuant to its notes facility of up to RM1 billion with obligation to pay the deferred sale price to a tenor of 22 years. the sukukholders. Malaysia PLUS Malaysia Berhad (PMB), the The sukuk was issued under musharakah expressway arm of UEM Group, is the structure where PLUS identified its business largest highway concessionaries or BOT comprising rights under the respective operator company in Malaysia and has toll-road concessions granted by the been operating the country’s toll roads Government of Malaysia or part thereof since 1988. PEB operates and maintains which was used as the underlying asset for almost 1,200 kilometres of expressways that particular musharakah transaction. The stretching from the border of Thailand income due to the sukukholders was based in the north to the border of Singapore on the musharakah venture’s undivided in the south as well as on the east proportionate interest in the underlying coast. asset. Any profit or loss derived from the musharakah venture was distributed or As part of its corporate exercise, PLUS, borne by each sukukholder in proportion to a subsidiary of PMB, was incorporated each sukukholder’s respective contribution on 27 July 2011 – to undertake of the musharakah capital. the consolidation of all highway concessionaires acquired under a single entity. As part of its privatization plan, PLUS launched its sukuk programme on 12 January 2012, structured under two tranches. 41 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 4: Islamic Finance PPPs – Essence of PPP Structure and Arrangement (continued) Country PPP Description PPP Arrangement Pakistan Liberty Power is a 195-MW residual- The Islamic financier (co-owner) and the fuel-oil−based power project located in SPV (as managing co-owner) entered into a Faisalabad, Pakistan, in the province of musharakah agreement to jointly build and Punjab. The project was implemented own the musharakah assets according to a at a cost of US$240 million. The Private pre-agreed investment ratio. The SPV, as an Power & Infrastructure Board signed an agent of the financiers of the musharakah implementation agreement on behalf partners, supervises the construction of the of the Government of Pakistan with project. The legal title of the musharakah the SPV, Liberty Power Tech Limited. assets remains with the SPV, on behalf of the The government provided a sovereign Islamic financier with respect to its undivided guarantee to the project, which share. Once the project is completed, the covered the performance and payment SPV, on behalf of the Islamic financier, issues obligations of the power purchaser sukuk based on the musharakah assets under the project agreements. which the Islamic financer owns the project. In other words, it was a project specific sukuk, issued once the project is completed. Limitations and Constraints of “It is all about fair-sharing Islamic Finance in PPPs of risk and if it is captured The Conference highlighted that Islamic finance and fairly distributed by is about asset class while PPPs will actually way of transparency, develop assets. The nature of Islamic finance that requires deals with real sector financing then the viability must means that asset ownership may become an be ensured to be fair and important issue in the PPP framework. However, equitable to overcome Shari`ah itself is very dynamic. Under ijarah the risk and to have structure, the lessor would not necessarily hold the title of the asset. The lessor may use its sustainable return.” usufruct20 right to lease the right to the SPV. – Dr Walid Abdelwahab, Director of This flexibility would then allow financiers to Infrastructure, Islamic Development finance infrastructure PPP projects by using Bank 20 Refers to the right to enjoy the use and advantages of the property, as long as it is not wasted or destroyed. 42 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations ijarah financing. This will facilitate cases where preference for the status quo in their investment the government wishes to retain title of public portfolio. Islamic finance is perceived as an assets. A real example is the aforementioned alternative that is inherently inferior to its airport expansion in Jordan; the concession conventional counterparts. Some argued during agreement requires that the ownership of the the Conference that this perception is not project remain with the government. necessarily unfounded. In some jurisdictions, Islamic finance, being the latecomer, is always Another challenge faced is the guarantee being structured to be equally feasible and arrangement. In the case of DCT, the MIGA competitive as the conventional; a follower provided guarantee coverage to the DCT PPP rather than a leader. The result is having Islamic in Djibouti. Considering that Islamic finance finance replicating the conventional, thus transactions may use several Shari`ah structures diminishing the former’s niche and uniqueness. resulting in a set of agreements, MIGA’s main challenge was that the project’s Islamic finance In some instances, in trying to make a level structure had payment obligations spread playing field for Islamic finance and the out across a number of agreements. This is conventional, the values of Islamic finance are different from MIGA’s normal practice where unintentionally not fully maximized. Therefore, guarantee coverage for third-party lenders it is not surprising that Islamic finance does not normally considers such obligations under a come out top in the priority list as investors and single loan agreement. stakeholders alike may not be psychologically convinced of the values Islamic finance propagates. It was shared21 that MIGA structured its guarantee in a way that addressed the key risks These issues and perceptions need to be that concerned the project financiers, while minimised for the Islamic finance industry to meeting the strict requirements governing the thrive and make greater inroads into PPPs. Islamic structure. This has resulted in MIGA’s Key recommendations that would contribute first-ever guarantee coverage of an investment to the strengthening and understanding of supported by an Islamic finance structure. Islamic finance applications are discussed in the The final dimension relates to investors’ following chapter. 21 Mobilizing Islamic Finance for Infrastructure Public-Private Partnerships, World Bank, PPIAF and IsDB, 2017. 43 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations CHAPTER Enabling PPPs via 04 Islamic Finance: Key Recommendations 44 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations T his chapter summarizes the key are recommendations that may not be relevant recommendations raised from the to more advanced markets. However, the deliberations during the Conference. In experiences of the advanced markets are cited view of the different stages of development whenever possible to highlight actionable items across Islamic finance markets and PPPs, there that have been implemented in various countries. FIGURE 7: Summary of Key Recommendations Recommendation: Recommendation: Governments and Regulatory authorities and Pillar 1: Pillar 2: MDBs to support financial market players to Political Will Modalities the development of develop sukuk market for and Global and facilitative infrastructure Coordination long term issuances to match Structures architecture for Islamic the long-term yield profile of finance. infrastructure investments. 4 Key Pillars of Recommendations Recommendation: Recommendation: The relevant Pillar 4: The relevant stakeholders stakeholders and Pillar 3: Awareness and authorities to increase authorities base to and Capacity awareness and technical Enabling improve market liquidity Building understanding of both PPPs Ecosystem for large infrastructure and Islamic finance to attract projects through players & institutional investors the development of as well as other important essential building blocks stakeholders. for a well-established ICM. 45 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Pillar POLITICAL WILL AND 1 GLOBAL COORDINATION Recommendation: Governments and MDBs to support the development of facilitative infrastructure architecture for Islamic finance Background: aims to offer can be materialized through in- Despite the strong existing and potential frastructure financing, hence the more reason growth of the ICM, doubts and, in some cas- to apply Islamic finance in PPPs. The question es, resistance still persist across the board in then remains: how to develop a long and last- accepting and applying Islamic financing, in- ing psyche in the market economy on Islamic cluding for infrastructure projects. However, finance? An immediate answer to this ques- disparities in infrastructure development con- tion is strong leadership by governments and tinue in many parts of the world, especially international multilateral institutions, namely in Muslim-majority countries. Islamic finance the MDBs. is still under-represented in financing these infrastructure developments. Given the real economic activities underlying these infrastruc- Proposed Measures: ture developments, and therefore the accruing MDBs, e.g. the World Bank and IsDB, have socio-economic benefits, Islamic finance is a played an instrumental role at the global level. viable alternative to conventional financing of The World Bank has been participating in de- infrastructure. Roads, railways, bridges, ports veloping standards with relevant stakeholders, and buildings are the types of infrastructure creating awareness and promoting the use of that facilitate employment, entrepreneurship, Shari`ah financing instruments worldwide. Box education, poverty alleviation and social inte- 1 provides an overview of the common compo- gration. All these go in line with the core prin- nents of Islamic finance architecture. ciples of Islamic finance that emphasize not only equitability but more importantly (social) The following are among the actionable items justice. Value propositions that Islamic finance under this recommendation: Table 5. 46 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Box 1 Islamic Finance Architecture Defined The Ten-Year Framework and Strategies for the Islamic Financial Services Industry Development22 (a joint initiative by the IsDB, Islamic Research and Training Institute (IRTI) and IFSB) on an Islamic financial architecture and infrastructure includes the following: Payment-settlement systems and infrastructures Financial markets and products, including market microstructures (including Shari`ah screening) Regulators and supervisors, including licensing Support facility providers, legal institutions and authorities framework, safety net, liquidity support providers Governance infrastructure, including Shari`ah Standard setters for financial supervision and governance institutions infrastructure Risk management, transparency and disclosure, and Rating and external credit assessment institutions corporate governance and information providers TABLE 5: Pillar 1 – Key Measures Key National Measure Merits and Actionable Items Establish an enabler or a Governments have to effectively delegate the role of promoting Islamic catalyst that can develop finance in infrastructure financing to a dedicated agency/institution. Such an a practical framework institution should be independent and distinguishable as it designs a practical (or guidelines) to deploy framework on how best to deploy Islamic finance in project financing. Islamic finance in infrastructure financing. Key areas of review or development to support an enabling environment for the utilization of Islamic finance in PPPs: • Establish a pool of expertise on areas of project financing, be it soft or hard, social or economic infrastructure, to review Islamic finance’s suitability and match it with particular project financing. Develop codes at national level for all potential and qualifying infrastructure projects to increase the projects’ profile visibility among potential Islamic finance investors who are searching to invest in infrastructure projects. • Grant incentives to market players who opt for Islamic finance in both their investments and project financing, namely through taxation or fiscal incentives. Islamic Financial Services Industry Development: Ten-Year Framework and Strategies, Framework Document, IFSB-IRTI, 21 May 2007. 47 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 5: Pillar 1 – Key Measures (Continued) Key Regional or Global Merits and Actionable Items Measure Incorporate Islamic finance MDBs need to step up efforts at featuring and promoting Islamic finance in multilateral financial on an equal footing with conventional financing, especially in infrastructure framework as a viable projects. Existing partnerships and collaborations between MDBs, namely the alternative. World Bank and IsDB, in financing infrastructure projects need to continue and enhancements can be made to include more significant projects that have high impact on societies across the globe or transnational projects. Processes as well as successes need to be adequately told and shared to develop trust and confidence among international market players in Islamic finance as a serious and viable option, and not merely an alternative to the conventional counterparts. Key areas of review or development to support an enabling environment for PPPs: • Develop an evaluation framework for financing infrastructure projects across geographies using Islamic finance instruments. This amounts to coming up with defined criteria that can be used by any international and regional institutions coordinating Islamic finance financing in infrastructure projects. • Establish a potential international one-stop-center to help manage the codes of all submitted potential and qualifying infrastructure projects. Such a ‘one-stop-center’ will ensure those projects’ profiles reach out to the largest possible audience, hence maximizing their visibility among potential Islamic finance investors. 48 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations MODALITIES & Pillar 2 STRUCTURES Recommendation: Regulatory authorities and financial market players to develop sukuk market for long-term issuances to match the long-term yield profile of infrastructure investments Background: to 2011 with 21%. The development of PPPs are often long-term contracts, spanning long-term capital market instruments would up to 30 years depending on the nature of the enable funding to be directed to strategic and infrastructure projects. The long life cycle means sustainable infrastructure projects that would projects are exposed to political, environmental contribute to long-term growth. The needs and socio-demographic changes. are rising as the banking sector has becoming increasingly constrained in financing long- During the Conference, discussion also revolved term debt projects in the aftermath of the around the question of the current sukuk global financial crisis. Also worth noting is that markets that are still having limited offerings infrastructure financing in emerging markets of long-term sukuk investment. Although the relies a lot more on the capital market. issuance trends of medium- to long-term tenure have improved, what is available in the market In addition, speakers discussed the need to is still relatively lacked of long-dated Shari`ah- develop a retail bond market for infrastructure compliant instruments. Medium- to long-term projects, aiming to widen the investor base sukuk with issuance of securities maturing five to enable the mass population to take part in years and above account for almost 40% of infrastructure investments. total issued securities in 2016 in comparison 49 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Box 2 Malaysia’s Retail Sukuk The SC in 2012, as part of its Capital Market Masterplan 2, has enabled retail participation in the bonds and sukuk market in meeting retail investors’ demand for a wider range of investment products, thereby broadening the range of low-risk investment products available to them and facilitating diversification for risk management purposes. Access for retail investors to sukuk was largely available through sukuk, unit trust funds and exchange traded funds. Under the Exchange-traded Bonds and Sukuk Framework, retail investors will now have direct access to sukuk. The issuers may choose to issue sukuk to retail investors either on the exchange (Bursa Malaysia) or over-the-counter (OTC) via appointed banks. This allows issuers to have access to a larger pool of investors. With the release of the Framework, Malaysia’s first retail (exchange-traded) sukuk was issued by a government-owned entity, Danainfra Nasional Bhd, a company tasked to undertake the development of the country’s mass rapid transit project. Proposed Measures: that should be offered as PPPs are normally PPPs that are complex and long-term must expensive due to the additional costs of exist in a defined framework with flexible project oversight as well as resources and rules to adapt to the possible changes that documentation required. Having a sound may occur during the long tenure of the framework and robust capital markets would project. Sustainability and monitoring over also increase the possibility of attracting retail the long term are key to the success of PPPs, investors, a potential target group apart from as this includes articulation of penalties upon institutional investors. non-fulfilment of the contractual obligations. To encourage wider private participation in The following are among the actionable items PPPs, tax incentives are one of the elements under this recommendation: Table 6. 50 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 6: Pillar 2 – Key Measures Key National Measure Merits and Actionable Items Structure the tax and Tax incentives implemented to encourage PPPs currently vary from one fiscal system to create a country to another. Specific legislation may also be enacted to encourage level playing field with the and facilitate infrastructure investment through PPPs as undertaken by conventional system. Vietnam, Korea and the Philippines. Alternatively, a broad-based range of tax incentives to promote investments across various industries may also include PPPs as part of the defined projects. Types of incentives that are applicable for PPP projects include reduced corporate tax rates, accelerated depreciation, investment allowances and infrastructure allowances, reduced taxes on interest and dividends and additional deductions for qualifying expenses. For instance, • Governments may provide tax holidays for firms in new and complex industries for projects that have strategic value to the national economy. • Governments may introduce an infrastructure allowance for resident companies engaged in strategic sectors. For example, in Malaysia, a company will be granted an allowance of 100% with respect to capital expenditure on infrastructure, such as reconstruction, extension or improvement of any permanent structure including bridges, jetty, port or road. The allowance can be offset against up to 85% of statutory income in the year of assessment. • Governments may also undertake initiatives to limit investors’ risk from currency fluctuations. In Korea, for example, with revenues generated by infrastructure projects primarily in won, foreign exchange fluctuations that exceed 20% may be offset through modifications of tariff rates, government subsidies, and adjustment of the concession period or other provisions up to 50% of losses due to such fluctuations23. Junglim Hamn, “Private Participation in the Infrastructure Programme of the Republic of Korea”, Transport and 21 Communications Bulletin for Asia and the Pacific 72 (2003): 71. 51 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 6: Pillar 2 – Key Measures (Continued) Key Regional or Global Merits and Actionable Items Measure Develop and facilitate Investors are familiar with services provided by infrastructure operators e.g. issuance of infrastructure telecommunications, airports, railways, transportation, hospitals and utilities. sukuk (including retail) In countries with an available pool of sophisticated investors, the potential internationally. exists to encourage the growth of a retail corporate bond market to support the funding needs of infrastructure developments. Infrastructure projects with regular revenue streams are potentially suited to long-term bonds issuance for the medium- to long-term investment portfolios of retail investors. In expanding the investor base to include sukuk participation, control measures and awareness must be robust. In the case of Malaysia, the retail bond and sukuk markets were introduced in phases to provide retail investors time to gain the necessary understanding and familiarity with investing and trading in bonds and sukuk. Under the first phase, it was only opened to issuances guaranteed by the Malaysian Government. DanaInfra issuance, for instance, allows participation by retail investors for the funding of the national infrastructure project, i.e. the mass rapid transit. The sukuk is guaranteed by the Malaysian Government. The second phase will allow purchase of retail bonds or sukuk by other issuers as identified by SC. 52 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Pillar ENABLING 3 ECOSYSTEM Recommendation: The relevant stakeholders and authorities to improve market liquidity for large infrastructure projects through the development of essential building blocks for a well-established ICM Background: fundamental support for the system to function The ICM operates in parallel with the existing effectively and within the value propositions capital market system. While key aspects that Islamic finance aims to offer. More of the ICM are able to leverage the latter’s importantly, in designing the building blocks infrastructure, there are a number of essential of the ICM, regulators or relevant stakeholders building blocks that must be developed for must foresee beyond just meeting the system’s the ICM to grow sustainably. This is essential immediate needs as Islamic finance presents particularly from the aspects of product a long-term prospect of serving the financial development, legal and regulatory treatments needs of a country’s economic development. as well as creation of a liquid secondary market. The prospects of Islamic finance to support In addition, human capital development and infrastructure development and the ecosystem Shari`ah governance are among other critical required for harnessing these prospects must aspects of the ecosystem, which will provide be well planned. 53 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Box 3 Malaysia’s Experience in Developing Comprehensive Islamic Capital Market During the Conference, SC shared Malaysia’s experience in creating a full ecosystem required for ICM to be where it stands today, as the largest global sukuk market and second largest for Islamic funds market. This includes putting in place the market infrastructure, e.g. commodity murabahah platform, credit rating agencies, exchange-traded bond and sukuk, which enable instruments to reach a wider audience in the market. In providing Shari`ah assurance to market players, a Shari`ah governance framework includes the establishment of a Shariah Advisory Council for ICM at national level in addition to the requirement to register Shari`ah advisers at the industry level. The regulatory framework and standards are benchmarked against international standards, e.g. IOSCO, with the second tier of regulation addressing Shari`ah compliance from a regulatory perspective. In addition, tax neutrality and incentives represent part of the components, made possible by strong government support to grow Islamic finance. Proposed Measures: which allows investors to exit from their Central to this recommendation is the fact positions as and when required to manage that infrastructure investors would search their portfolios. Additionally, greater market for stable and guaranteed cash flows, where discipline and transparency will attract more the instruments offered under an ecosystem participation from institutional investors, e.g. provide legal backing, regulation clarity, sovereign wealth funds, insurance and takaful avenues for fast dispute resolution and other companies, governments and government- capital market supports, e.g. price discovery related agencies and individual retail investors. and settlement system. This will create a wider investor base (both foreign and domestic), thus enabling flows of Fundamentally, a robust domestic corporate capital to infrastructure needs to support the ICM encourages issuance of long-term and country’s socio-economic development. diversified investments, thus helping to support a stable accumulation of wealth for The following are among the actionable items large infrastructure projects. This includes under this recommendation: Table 7. having an efficient secondary market liquidity, 54 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 7: Pillar 3 – Key Measures Key National Measure Merits and Actionable Items Facilitate and moderate An integrated plan at national level is vital. The establishment of relevant specific working groups working groups will facilitate review of pressing challenges faced by on developing ICMs respective parties and will determine key priority measures that will fast domestically. track the process without duplication of unnecessary resources. The facilitation of PPPs (in the context of Islamic finance) covers legal, regulation, tax and accounting aspects, and requires support from the national economic planning unit and government ministries, among others. As such, the establishment of working group(s) forms part of the building blocks, a component that will accelerate the process and ensure continuity of plans. Key areas of review or development to support an enabling environment for PPPs: • Review the existing market infrastructure, e.g. facilities, platform and technology required to execute primary (and secondary) market trades and post-trade activities. • Review legislations and regulations that will promote greater participation by prospective issuers and investors, e.g. review of withholding taxes. • Improve the role of information by rating providers in disseminating market information to help investors determine the benefits and risks of investing in different issuances and markets. • Develop hedging instruments to enable risk management. Broaden the pool of Infrastructure projects are typically long-term and involve a large initial institutional investors with capital outlay. Institutional investors, particularly pension funds that are also long-term investments financial intermediaries, are potential infrastructure investors as they also horizon such as pension facilitate the pooling of capital for investing in capital markets. The creation funds and takaful. of Shari`ah-compliant pension funds would definitely boost the prospects of infrastructure investments as pension funds would search for long-term instruments to match their long-term liabilities. A wider Islamic investor base would create natural demand for PPPs through Islamic finance using capital markets instruments. This larger pool of investors becomes even more critical, given the current challenges where Islamic banks are struggling with heightened regulations resulting in constrained exposure for long-term financing, apart from being subject to single customer limit requirements. Pension funds and sovereign wealth funds are key stakeholders that can play an instrumental role in supporting the demand side of Islamic infrastructure investments. 55 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 7: Pillar 3 – Key Measures Key Regional or Global Merits and Actionable Items Measure MDBs to collaborate in In recent years, there have been various initiatives introduced by capital a more comprehensive market regulators and policy makers all around the world, who have manner with private collaborated with stakeholders, including MDBs, financial industry international investors practitioners and investors. In particular, there is currently an on-going to get buy-in for Islamic initiative to develop an Islamic Infrastructure Investment Platform (I3P) by finance. Asia-Pacific Economic Cooperation (APEC) member countries to facilitate the mobilization of capital in Islamic institutions to fund infrastructure across the region. The I3P is an initiative which uses market-based financing to address very significant infrastructure financing needs. The platform recognises the growing prominence of Islamic finance that also serves as an alternative mechanism in fulfilling these needs. Globally, capital markets have become increasingly important as a conduit for capital raising, especially for large-scale and long-term financing typically required by infrastructure developments. At a time where public funding for infrastructure has become constrained, capital markets can facilitate the allocation of private capital using risk-diversifying techniques, guarantees, and the alignment of investor and borrower interests. The I3P, which is an industry-driven collaborations provides a platform for various stakeholders, including MDBs, regulatory bodies, financial institutions, government agencies, academic organisations as well as international investors. As investors begin to consider the value proposition of the infrastructure asset class, it is increasingly recognised as a viable option, with potentially consistent income streams over a long period, and a lower sensitivity to business cycles as well as lower correlations to other asset classes. These characteristics are desirable particularly for investors with a lengthier investment horizon and an appetite for diversification. 56 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Pillar AWARENESS AND 4 CAPACITY BUILDING Recommendation: The relevant stakeholders and authorities to increase awareness and technical understanding of both PPPs and Islamic finance to attract players and institutional investors as well as other important stakeholders. Background: whether or not the word ‘Islamic’ should be Capital market instruments and direct retained when talking about Islamic finance. investments are increasingly being utilized for The response was rather mixed and the meeting financing needs of the infrastructure proponents argued that the word ‘Islamic’ sectors, where bond and equity participation should be retained for branding purposes as have gained greater traction. Institutional well as for distinguishing the principles and investors are now more familiar with long- philosophies that underlie Islamic finance dated infrastructure debt risk. from its conventional counterparts. Yet, views from other parts of the globe, namely from In encouraging more institutional investors the North American markets, seem to suggest to use Islamic finance structures for PPPs, little evidence on whether the notion ‘Islamic’ it is expected that there will be different in Islamic finance does indeed matter. In some challenges for different groups of investors Central Asian Muslim countries, demand for and jurisdictions across the globe. Even among Islamic finance is surprisingly higher from Muslim countries, surmounting the challenge the non-Muslim population as opposed to to be widely accepted is a great task. The the Muslim population. Clearly then there is challenge becomes more intense and multiple more work to be done in terms of promoting in predominantly non-Muslim countries, whose and branding Islamic finance, especially to acceptance or opposition (or even indifference) institutional investors who are the key targets is being compounded with stigmas of Muslims for PPP investments. and Islam in general. Hence, there were even questions raised during the Conference on 57 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Proposed Measures: about Islamic infrastructure financing among Central to this recommendation is that various stakeholders, including private and infrastructure development can serve as institutional investors as well as project one of the best economic sectors for the managers. Only when the stakeholders are application of Islamic finance. Infrastructure well equipped with the necessary information (project) financing is no stranger to Islamic and adequate knowledge, can the buy-in for finance. Nonetheless, more aggressive efforts, Islamic finance in infrastructure financing be undertaken sustainably, need to be made optimized. to increase the depth of Islamic finance in PPPs or infrastructure financing. Key in this The following are among the actionable items recommendation is awareness and knowledge under this recommendation: Table 8. Box 4 Khazanah Nasional Bhd – An Exemplary Role During the Conference, Khazanah Nasional Bhd (Khazanah) shared its experience in promoting the growth of Islamic finance. As the strategic investment fund of the Goverment of Malaysia, Khazanah is dedicated to undertaking nation-building that creates value while delivering prosperity to Malaysians, a good example of roles that can be played by a sovereign wealth fund. Khazanah positions itself as a leader by virtue of its shareholding capacity in the country’s key government-linked companies (GLCs). Through its ‘purple’ book, a guideline for GLCs’ investments, Khazanah specifically includes a clause encouraging all Khazanah’s investee companies to consider Islamic finance solutions where appropriate. Furthermore, Khazanah takes on a proactive role in paving the way for growth in Islamic finance by 1) investing in global Islamic finance products to support the depth of the market; 2) issuing innovative and globally accepted Islamic finance products to enhance the development of the industry; 3) investing in Islamic financial institutions towards the development of the local Islamic finance industry; 4) catalyzing the growth of Islamic finance by introducing Middle Eastern investments into Malaysia using Shari`ah-compliant structures; 5) investing in initiatives to catalyze the growth of Islamic finance across the world, including collaborations with like-minded institutional investors; and 6) playing an active role to build capacity as well as raise awareness by funding educational institutions. 58 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations TABLE 8: Pillar 4 – Key Measures Key National Measure Merits and Actionable Items Knowledge-sharing The knowledge-sharing programs include, but are not limited to, identifying programs with issuers and case studies on different sectors’ experiences with Islamic finance and investors on infrastructure proposing priority sectors like infrastructure development for the application financing and investments of Islamic finance. The latter will involve presenting content that thoroughly and the long-term benefits addresses not only the benefits but also the risks involved and how to for society. mitigate or remove them altogether. With regard to PPPs specifically, there exist PPP certification programs in the market. This way, Islamic finance as an instrument can be made more visible to a larger group of audience. It is also one of the more effective ways to remove misperceptions about Islamic finance and to put across the correct perspective through proper information, especially to Islamic finance sceptics. Key Regional or Global Merits and Actionable Items Measure Increase institutional Infrastructure projects present long-term risks to private international cooperation between the investors. This is where joint cooperation between MDBs can play a MDBs through roadshows catalytic role in instilling confidence and nurturing practical knowledge and promotional activities about infrastructure financing in Islamic finance. Concrete examples and including research and case studies from previous infrastructure project financing through Islamic publication. finance need to be unveiled to private international investors, both in terms of their failures and successes to make the process of learning more transparent. The MDBs need to include more proactive operational activities like joint roadshows and on-site promotional and informative sessions. The excellent access these institutions have in their respective member countries must be exploited to the maximum to reach out to all potential investors and project managers as well as the entire value chain of the infrastructure sector. The existing level of institutional cooperation between MDBs has to go beyond intellectual and analytical mode through joint research and publication. The findings and outcomes from joint institutional research and publication activities can be communicated during their sessions with private international investors. At these sessions, the respective local or regional agencies relevant to Islamic finance and infrastructure development can also be brought in to develop a more relevant discourse model between investors and investees that reflect the different geographical and cultural experiences. In short, the main objective is to get wider acceptance, measured by its application, of Islamic finance in infrastructure financing from as many issuers and investors as possible. 59 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Conclusion Islamic finance is poised to play greater roles to support infrastructure funding needs, particularly in countries with budding Islamic finance sectors, e.g. the African and Asian regions. The growing proliferation of institutional investors seeking Shari`ah-compliant investments, e.g. pension funds and sovereign wealth funds in the OIC countries, is one of the pulling factors for tapping into this rising investment appetite. Islamic finance could be the key source in developing infrastructure PPPs. Pivotal to this is creating a facilitative framework, enabling greater efficiency to cost, implementing targeted awareness efforts and addressing challenges in coordination with relevant parties for greater efficiency and effectiveness. There is no question of Islamic finance not being compatible with PPPs. However, limitations and challenges that exist and recognizing them and understanding the context in which they exist are critical to gauge their potential implications on infrastructure PPP development. Addressing the political will requires innovative leadership from both the public and private stakeholders. Such innovative leadership will help ensure a thriving capital market domestically and globally. With a strong market environment, an ecosystem that is fundamental to Islamic financing can be nurtured and developed. To further strengthen this ecosystem, sound collaboration between the different stakeholders is paramount in creating greater awareness and building capacity for Islamic finance in infrastructure PPPs. Moving forward, findings of this report show that there is a strong nexus growing between Islamic finance and sustainable development. Hence, it is timely to discuss the concrete role of Islamic finance in driving sustainable development, especially in infrastructure development. Such a discussion will be extremely relevant in assessing the impact of recent financial initiatives, namely the green sukuk issuance. Future initiatives should continue to position Islamic finance at the forefront of global finance. 60 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations References Ahmad, Aijaz, Alawode, Abayomi, et al. Mobilizing Islamic Finance for Infrastructure Public- Private Partnerships. Report 2017. World Bank, PPIAF and IsDB, 2017. https://ppiaf.org/ documents/5369/download. Hamn, Junglim. “Private Participation in the Infrastructure Programme of the Republic of Korea.” Transport and Communications Bulletin for Asia and the Pacific 72 (2003): 57–75. Islamic Financial Services Industry Stability Report 2017. Kuala Lumpur: Islamic Financial Services Board, May 2017. http://www.ifsb.org/docs/IFSB%20IFSI%20Stability%20Report%20 2017.pdf. Inderst, Georg. Infrastructure Investment, Private Finance, and Institutional Investors: Asia from a Global Perspective. ADBI Working Paper 555. Tokyo: Asian Development Institute, January 2016. https://www.adb.org/sites/default/files/publication/179166/adbi-wp555.pdf. Islamic Financial Services Industry Development: Ten-Year Framework and Strategies. Framework Document. IFSB-IRTI, May 2007. http://www.ifsb.org/docs/10_yr_framework.pdf. Islamic Fund: Gearing up, MIFC, May 2017. MIFC. 2016 Global Sukuk Market: A Record Year For Corporate Issuance. March 2017. http://www. mifc.com/index.php?rp=sukuk_report_270317.pdf. MIFC. Sukuk Growing Relevance in Infrastructure Development. MIFC Insights. October 2013. http://www.mifc.com/index.php?ch=28&pg=72&ac=53&bb=uploadpdf. MIFC. Islamic Wealth Management: Growing Stronger Globally. February 2016. http://www.mifc. com/index.php?ch=28&pg=72&ac=166&bb=uploadpdf. Ruiz-Nuñez, Fernanda, et al. The State of PPPs Infrastructure Public-Private Partnerships in Emerging Markets & Developing Economies 1991–2015. World Bank Group-PPIAF Report. World Bank Group, June 2016. https://ppiaf.org/documents/3551/download. Ruiz-Nuñez, Fernanda and Wei, Zichao. Infrastructure Investment Demands in EMDEs. Policy Research Working Paper 7414. World Bank, September 2015. http://hdl.handle. net/10986/22670. Public-private partnerships and the global infrastructure challenge: How PPPs can help governments close the “gap” amid financial limitations. Ernst & Young, 2015. http://www.ey.com/ Publication/vwLUAssets/Health/%24FILE/EY_PPP_Thought_Leadership.pdf. State of the Global Islamic Economy 2015/2016. Thomson Reuters, October 2016. http://www. zawya.com/ifg-publications/ 61 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendices • Appendix 1: Conference Agenda • Appendix 2: Speaker Profile 62 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 1 Conference Agenda DAY ONE: Monday, May 8, 2017 OPEN PLENARY SESSIONS Time Details 08:30 am – 09:00 am Registration 09:00 am – 09:30 am Welcome Remarks 1. Tan Sri Dato’ Seri Ranjit Ajit Singh, Chairman, Securities Commission Malaysia 2. Laurence Carter, Senior Director, Public Private Partnerships, World Bank 09:30 am – 10:45 am Session 1: An Overview of Global Infrastructure Development Needs and Islamic Infrastructure Finance A. Infrastructure Development and Financing Needs: A Global Assessment Speaker: Aijaz Ahmad, Senior Specialist, Public Private Partnerships, World Bank Description: This session offers a comprehensive review on the current infrastructure development and needs around the world with special focus on the Muslim countries. This will comprise latest thinking on infrastructure financing, including measures to encourage public investment as well as strategies for private financing and amalgamation version of both - assessing what institutes the current best practice in public policy and the regulatory and business environment in addition to the roles of market players. B. Islamic Infrastructure Finance: Creating an Enabling Environment Speaker: Zainal Izlan Zainal Abidin, Managing Director, Development and Islamic Markets, Securities Commission Malaysia Description: This session will provide an overview of the Islamic finance eco- system and architecture in terms of market infrastructure for long term investment need. How do we create mechanism to facilitate flow of funds from the private sector to finance public infrastructure. Making available instruments through the capital market such as local currency sukuk and funds, identifying long term investors such as multilaterals, institutions and understanding their needs. 10:45 am – 11:00 am Coffee Break 63 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 1 Conference Agenda Time Details 11:00 am – 11:45 am Session 2: Islamic Infrastructure Finance: Instruments Speaker: Tahir Ali Sheikh, Director & Head of Islamic Advisory, Regional Debt Capital Markets, CIMB Investment Bank Description: This session will provide an overview of Islamic financing instruments commonly used for project/infrastructure finance. It will examine the characteristics of these instruments which make them suitable for infrastructure financing before reviewing the different forms of financing, common structures and other essential requirements. 11:45 am – 12:45 pm Session 3: Case Studies: Islamic Finance and PPPs in Practice Case study 1: North-South Highway – PLUS Story Speaker: Dato´ Izzaddin Idris, Group Managing Director/Chief Executive Officer, UEM Group Berhad Case study 2: IsDB’s Role in Doraleh, PPP Container Terminal, Djibouti Project Speaker: Dr Walid Abdelwahab, Director of Infrastructure, Islamic Development Bank Description: This session will present an interesting case of how Islamic finance has been used to support PPP projects. It will highlight key aspects, facilitating factors, challenges faced and solutions provided; and the general lesson of experience in using these instruments. 12:45 pm-2:00 pm Lunch 02:00 pm – 02:45 pm Session 4: PPP Models for Infrastructure Delivery Speaker: Yong Hee Kong, Senior Adviser, ASEAN Advisory Pte Ltd Description: The session will provide an introduction to the concepts relating to PPP models for infrastructure delivery – how and when they can be used, enabling frameworks and processes, structuring, getting buy-in from stakeholders, as well as implementation of PPP projects. 64 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 1 Conference Agenda Time Details 02:45 pm – 04:00 pm Session 5: Panel Discussion: Country Perspective on PPP Projects – Key Factors for Consideration Moderator: Eugene Wong Weng Soon, Managing Director, Corporate Finance and Investments, Securities Commission Malaysia Panellists: 1. Noormah Mohd Noor, Chief Executive Officer, Express Rail Link Sdn Bhd 2. Dr Walid Abdelwahab, Director of Infrastructure, Islamic Development Bank 3. Achmed Badaruddin M Yatim, Director, PPP Unit, Prime Minister’s Department 4. Mohammed Paracha, Head of Islamic Finance - Middle East & Africa, Norton Rose Fulbright (Middle East) LLP Description: The panel consisting of stakeholders of PPP namely financial adviser, representative from government and developer. They will focus on rationale for undertaking a PPP, balancing the risk perspective, structuring, optimal debt-equity ratio, structure, risk allocation and management, contract designs etc. 04:00 pm – 04:15 pm Coffee Break 04:15 pm – 05:30 pm Session 6: Panel Discussion: A Greater Role for Islamic Finance in PPPs for Infrastructure Development Moderator: Zamir Iqbal, Lead Financial Sector Specialist, World Bank Panellists: 1. Dato’ Mohd Izani Ghani, Executive Director, Khazanah Nasional 2. Khalid Ferdous Howladar, Managing Director & Founder, Acreditus 3. Ashraf Mohammed, Assistant General Counsel, Asian Development Bank 4. Prof Dr Ashraf Md Hashim, Chief Executive Officer, ISRA Consultancy Description: Given the rapid global growth of Islamic finance and the recognized need to mobilize more private capital to support infrastructure provision, the panel members will discuss how Islamic finance could play a greater role, such as: • Deciding on the optimum structure • How to attract long term investors/ financiers? • What is the value proposition for developers to pursue Islamic financing? • Facilitating cross border Islamic infrastructure finance where there are gaps • Replicating successful Islamic finance - PPP models • Ensuring Shariah governance • Issues and Challenges 05:30 pm – 05:45 pm Closing Remarks Faris H Hadad-Zervos, Country Manager for Malaysia, World Bank 65 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 1 Conference Agenda DAY TWO: Tuesday, May 9, 2017 CLOSED-DOOR ROUNDTABLE WITH PANEL OF EXPERTS Time Details 09:15 am – 09.30 am Opening Remarks Zainal Izlan Zainal Abidin Managing Director, Development and Islamic Markets, Securities Commission Malaysia 09:30 am – 09:45 am Key Takeaways of Day 1 Speaker: Arshad Mohamed Ismail, Head, Global Banking Business, Group Islamic Banking, Maybank Islamic 09:45 am – 11:00 am Roundtable Discussion (Part 1): Islamic Finance and Infrastructure: Possible Solutions Moderator: Abayomi A Alawode, Head of Islamic Finance, World Bank Panellists: 1. Arshad Mohamed Ismail, Head, Global Banking Business, Group Islamic Banking, Maybank Islamic 2. Mohammed Paracha, Head of Islamic Finance - Middle East & Africa, Norton Rose Fulbright (Middle East) LLP 3. Dr Julius Caesar Parrenas, APEC Business Advisory Council 4. Aamir A Rehman, Fajr Capital Description: The panelists will discuss the challenges and successes they have experienced in Islamic infrastructure finance and share practical, actionable solutions. 11:00 am – 11:15 am Coffee Break 11:15 am – 12:30 pm Roundtable Discussion (Part 2): Expanding Islamic Finance in Infrastructure Financing: Towards an Action Plan Moderator: Abayomi A Alawode, Head of Islamic Finance, World Bank Group Panellists: 1. Rafe Haneef, Chief Executive Officer, CIMB Islamic 2. Tengku Muhammad Taufik, Senior Executive Director, PwC Malaysia 3. Professor Walid Hejazi, Academic Director, University of Toronto 4. Michael J T McMillen, Global Head of Islamic Finance and Investment, Curtis, Mallet-Prevost, Colt & Mosle LLP Description: Against the background of the challenges and possible solutions discussed in Part 1, this panel will focus on steps that need to be taken to develop a sustainable ecosystem for Islamic Infrastructure finance, including further studies and analysis as well as outlines of a possible demonstration project. 12:30 pm – 12:45 pm Closing Remarks Zainal Izlan Zainal Abidin, Managing Director, Development and Islamic Markets, Securities Commission Malaysia 12:45 pm-2:00 pm Lunch 66 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE TAN SRI DATO’ SERI RANJIT AJIT SINGH Chairman Securities Commission Malaysia Tan Sri Dato’ Seri Ranjit Ajit Singh is the Executive Chairman of the SC. He was previously Managing Director of the SC and has extensive experience in the field of finance and securities market regulation and has spearheaded many key initiatives in the development and reform of Malaysia’s capital market. Tan Sri Dato’ Seri Ranjit was appointed the Vice-Chairman of the governing Board of the International Organization of Securities Commissions (IOSCO), the global body of capital market regulators and was elected as the Chairman of IOSCO’s Growth and Emerging Markets Committee (GEM) which represents 94 countries. In 2014, he was appointed Chairman of the ASEAN Capital Markets Forum (ACMF), a body tasked to spearhead market integration efforts within the region and comprises capital market authorities from ASEAN. Tan Sri Dato’ Seri Ranjit chairs the Securities Industry Development Corporation (SIDC), the Malaysian Venture Capital and Private Equity Development Council (MVCDC) and the Capital Market Development Fund (CMDF). He is also the Vice- Chairman of the Asian Institute of Finance and a member of the Board of the Labuan Financial Services Authority and the Financial Reporting Foundation as well as a board member of the Malaysian Institute of Integrity (IIM). Tan Sri Dato’ Seri Ranjit is trained as a financial economist and accountant. He holds a Bachelor of Economics (Honours) degree and a Master of Economics degree in Finance from Monash University, Melbourne. He was also conferred the degree of Doctor of Laws honoris causa by Monash University Melbourne. He is a fellow of CPA Australia and has worked in academia, consulting and accounting in Australia and Malaysia. 67 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   LAURENCE W. CARTER Senior Director, Public Private Partnerships, World Bank Laurence W. Carter is the Senior Director of the Public Private Partnerships Group for the World Bank Group. The PPP Group advises on the strategic direction and goals for the WBG on PPPs, supports coordination across the WBG, promotes partnerships and facilitates global knowledge about PPPs. Previously Laurence ran IFC’s PPP Transaction Advisory Department for six years, and before that held positions in IFC’s Central and Eastern Europe department and the Small and Medium Enterprises Department. Prior to joining IFC, Laurence worked for 10 years in Botswana, Malawi, Swaziland and the south Atlantic island of St Helena. Laurence holds degrees in economics from the Universities of Cambridge and London, and the CFA. 68 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE AIJAZ AHMAD Senior Specialist, Public Private Partnerships (PPPs) World Bank AIJAZ AHMAD Senior Specialist, Public Private Partnerships (PPPs) World Bank Aijaz Ahmad, Aijaz Ahmad,currently working currently a Senior asas working Specialist a Senior with Specialist the with Public the Private Public Partnerships Private (PPPs) Partnerships Group (PPPs) Group at the World Bank, has over twenty five years of experience in project finance, infrastructure development, at the World Bank, has over twenty five years of experience in project finance, infrastructure development, private sector development, PPPs and privatization. private sector development, PPPs and privatization. Prior to joining the Bank, Mr. Ahmad was the Chairman and CEO at Pangea Growth Ltd. providing project Prior toand finance PPP joining advisory the Bank, services Mr. Ahmad in the wasMiddle East and South the Chairman and CEOAsia markets. at Pangea Before Growth that, Ltd.he was the project providing CEO of the Infrastructure Project Development Facility – a company owned by the Federal Finance finance and PPP advisory services in the Middle East and South Asia markets. Before that, he was the Ministry of Pakistan to act as its central PPP unit. Mr Ahmad was also the founding member and acting CEO of Head of the Infrastructure the PPP Unit in theProject NationalDevelopment FacilityAfrica. Treasury of South – a company owned Earlier, he was a by the Federal Program Finance Advisor with the Privatization Commission Ministry of Pakistan to actof as Pakistan, after its central PPPlaunching unit. Mrthe first private Ahmad sector was also the airline foundingof Pakistan member inand the acting Head of of capacity the the airline’s PPP Unit inVice thePresident, Corporate National Treasury of Affairs. South Africa. Earlier, he was a Program Advisor with the Privatization Commission of Pakistan, after launching the first private sector airline of Pakistan in the Mr. Ahmad’s country experience includes assignments in Bhutan, Brazil, Costa Rica, Egypt, Ghana, capacity Kenya, airline’s of theIndia, Kuwait, Vice President, Indonesia, Corporate Japan, Jordan, Affairs.Pakistan, Poland, Qatar, Saint Lucia, Saudi Maldives, Arabia, Solomon Islands, Syria, Qatar, South Africa, USA, Uzbekistan and Yemen. Mr. Ahmad’s country experience includes assignments in Bhutan, Brazil, Costa Rica, Egypt, Ghana, Kenya, Kuwait, India, Indonesia, Japan, Jordan, Maldives, Pakistan, Poland, Qatar, Saint Lucia, Saudi Arabia, Solomon Islands, Syria, Qatar, South Africa, USA, Uzbekistan and Yemen. ASHRAF MOHAMMED Assistant General Counsel and Practice Leader, Islamic Finance Asian Development Bank 69 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   ZAINAL IZLAN ZAINAL ABIDIN Managing Director Securities Commission Malaysia Zainal Izlan Zainal Abidin is the Managing Director for Development and Islamic Markets at the Securities Commission Malaysia (SC). He joined the SC in 2011. He is also the Chairman of Capital Markets Malaysia, an entity established by the SC to promote the Malaysian capital market. He has over 25 years experience in the financial services industry, primarily in the capital market segment. He began his career with Citibank Malaysia before joining MIDF Amanah Asset Management (MIDF Asset). During part of his tenure with MIDF Asset, he was seconded to Schroder Investment Management in London. He was the CEO/Director of MIDF Asset and Head of the Asset Management Division of the MIDF Group until 2007 when he joined i-VCAP Management, an Islamic fund management firm, as its first CEO. He holds a Bachelor of Science in Economics degree (dual concentration in Accounting & Finance) from The Wharton School, University of Pennsylvania, USA, and is a Chartered Financial Analyst (CFA) charterholder. He presently sits on the Technical Committee of both the Islamic Financial Services Board and the Finance Accreditation Agency Malaysia. He is also a member of the Malaysian Institute of Accountants Islamic Finance Committee. He was previously President of CFA Malaysia, Vice Chairman of the Malaysian Association of Asset Managers (MAAM) and Chairman of MAAM Islamic Fund Management Sub- Committee. 70 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE TAHIR ALI SHEIKH Director and Head of Islamic Advisory Regional Debt Capital Markets, CIMB Investment Tahir Ali Sheikh has eighteen years of experience in capital markets, asset management, project financing and private equity in the Middle East, Central, South and South-East Asia. Mr. Sheikh is currently the Head, Islamic Advisory, Regional Debt Capital Markets (“DCM”) at CIMB where he leads structuring and execution of Sukuk transactions. Prior to joining the DCM team, Mr. Sheikh was Head, Islamic Asset Management and Investments at CIMB Islamic where he is responsible for managing the Shariah advisory aspects for CIMB Group’s Islamic investment management business which totaled USD 5.7 billion in assets under management. Mr. Sheikh was previously a Director with the infrastructure-focused private equity fund manager CapAsia, a one-time wholly owned subsidiary of the CIMB Group, where he served as the senior team member responsible for making investments for the USD 287 million Islamic Infrastructure Fund. Prior to joining CapAsia, Mr. Sheikh led project and corporate finance transactions in the greater Middle East as Vice President with the Abu Dhabi Islamic Bank. Mr. Sheikh has also worked as Projects Officer at the Islamic Development Bank (IDB) where he managed a portfolio of projects in excess of USD 2.3 billion in Indonesia, Pakistan, Iran and Bangladesh. Mr. Sheikh started his career with BP Exploration and Production in Pakistan in 1996. Mr. Sheikh is a CFA Charterholder and has a Master in Public Administration degree from Harvard University. He received his B.Sc. in Mechanical Engineering from University of Engineering and Technology, Lahore and also has an MBA from Institute of Business Management, Karachi where he graduated top of his class. 71 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE DATO´ IZZADDIN IDRIS Group Managing Director/Chief Executive Officer UEM Group Berhad Dato’ Izzaddin Idris was appointed Group Managing Director/Chief Executive Officer of UEM Group Berhad (UEM Group) on 7 July 2009. Dato’ Izzaddin holds a Bachelor of Commerce Degree (First Class Honours in Finance) from University of New South Wales, Australia and is a Fellow of CPA Australia and a member of Malaysian Institute of Accountants (MIA). He has over 20 years of experience in the fields of investment banking, financial and general management and was previously the Chief Financial Officer/Senior Vice President (Group Finance) of Tenaga Nasional Berhad, a position he held from September 2004 to June 2009. He was formerly a Senior Vice President (Corporate Finance) of Southern Bank Berhad and the Chief Financial Officer of Ranhill Berhad. He also held the position of Chief Operating Officer of Malaysian Resources Corporation Berhad in the late 1990s. After graduating in June 1985, Dato’ Izzaddin served Malaysian International Merchant Bankers Berhad for almost 11 years which included a 3-year secondment in the late 1980s to Barclays de Zoete Wedd Limited, a London-based investment bank and a subsidiary of Barclays Bank PLC then. Dato’ Izzaddin currently sits on the Boards of UEM Group Berhad and several UEM Group of Companies including UEM Sunrise Berhad, UEM Edgenta Berhad, PLUS Malaysia Berhad, Cement Industries of Malaysia Berhad, PT Lintas Marga Sedaya in Indonesia and India’s Uniquest Infra Ventures Private Limited. He is also a Board member of Axiata Group Berhad, one of the leading telecommunications group in Asia. In addition, Dato’ Izzaddin is a member of the Board of Trustees at Yayasan UEM, a non-profit foundation that supports the implementation of UEM Group’s corporate responsibility initiatives and philanthropic activities as well as a Director of Yayasan Putra Business School, a non-profit organisation that aims to become a home-grown globally recognised Business School. 72 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE DR WALID ABDELWAHAB Director of Infrastructure Islamic Development Bank Dr Abdelwahab is the Director of Infrastructure at the Islamic Development Bank leading infrastructure work across transport, water, energy and ICT in the Bank’s 56 member countries in Asia, Africa, MENA, Europe and Latin America, with a portfolio of about $20 billion. During his tenure, Dr Walid also led the introduction of Public- Private Partnership (PPP) financing in infrastructure in the Bank, which has evolved into an important line of business. Before joining IDB in 1998, Dr Walid held various senior positions with the Ministry of Transportation and Highways of British Columbia, Canada and Universities in Canada and Jordan. He also advised ministries of Transport, Public Works, and Municipal Affairs, Jordan on various infrastructure issues. Dr Walid published numerous articles in international refereed journals, conference proceedings, and Government reports related to engineering, planning and economics of transport infrastructure. Dr Walid holds a PhD degree in Civil Engineering from the University of Calgary, Canada. 73 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   YONG HEE KONG Senior Adviser Asean Advisory Pte Ltd HK Yong is a Senior Adviser to ASEAN Advisory, the consulting arm of Zico Holdings, listed in Singapore. He is also an Adviser to CWEIC London (Commonwealth Enterprise and Investment Council) on PPP matters, and an Adviser to Resource and Advisory Centre Malaysia. He was a Senior Fellow with ISIS Malaysia (Institute of Strategic & International Studies) where he focused on infrastructure development and financing. HK was the Adviser (Public Private Partnerships) of the Commonwealth Secretariat, London, and provided advisory and capacity-building support to the 53 member countries. He is a member of the Asian Council of the International Project Finance Association. HK holds a B.Eng (Hons) in Civil and Structural Engineering (UK), an MBA (UK), and a Diploma in Corporate Treasury (UK), and a Postgrad Diploma in Islamic Studies from ISTAC, International Islamic University. He also qualified as a Chartered Accountant (England and Wales) and attended Harvard University Privatisation course. He has more than 30 years of experience advising public and private sectors on PPP, privatisation, project financing, M&A and strategic planning. He edited the book ‘PPP Policy and Practice - a Reference Guide’. 74 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   EUGENE WONG WENG SOON Managing Director Securities Commission Malaysia Eugene Wong Weng Soon is the Managing Director of the Securities Commission Malaysia (“SC”) and is responsible for matters relating to Corporate Finance & Investments which covers IPOs, Private Debt Issuances, Collective Investment Schemes and Take-overs. He also oversees the SC’s ASEAN related initiatives. Prior to joining the SC in 2009, Eugene has held positions in a merchant bank, a stockbroking company and in the audit and corporate finance divisions of international accounting firms. He is an adviser to the Malaysian Accounting Standards Board and a Board Member of the Audit Oversight Board. Eugene was the immediate past Chairman of the Ethics Standards Board of the Malaysian Institute of Accountants. Eugene is a Fellow of the Institute of Chartered Accountants Australia and New Zealand, Fellow of CPA Australia and a member of the Malaysian Institute of Accountants. He has an Advance Diploma in Corporate Finance from The Institute of Chartered Accountants in England & Wales (ICAEW) and holds a BComm from the University of Melbourne. 75 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE NOORMAH MOHD NOOR Chief Executive Officer Express Rail Link Sdn Bhd Noormah Mohd Noor joined ERL in October 1997 as General Manager of Finance, and was instrumental in the development of the RM2.4billion high speed rail link between KL Sentral station and the Kuala Lumpur International Airport (KLIA). As a specialist in infrastructure projects, Noormah played a critical role in revamping and successfully completed in 1999 that lead to the implementation of the ERL project. She was appointed CEO in June 2009. Under her leadership, ERL has charted a double digit growth in the last 4 years which put the company on the global map with numerous industry awards and overseas consultancy services. She is an advocate of technological innovations and took a hands-on approach in ERL’s new Automatic Fare Collection system project as part of the company’s strategy to improve customer experience. Noormah is a regular speaker at conferences and seminars both in Malaysia and abroad on rail transport and specifically, air-rail related subjects. 76 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE ACHMED BADARUDDIN BIN M YATIM Director of Private Partnership (PPP) Unit Prime Minister’s Department Achmed Badaruddin is currently the Director of Infrastructure at Public Private Partnership (PPP) Unit, Prime Minister’s Department. He and his team plan and coordinate the implementation of PPP infrastructure and land development projects. Previous to that, Achmed served at the Economic Planning Unit, Prime Minister’s Department for 16 years. He was in the Infrastructure, Human Capital and Services Industry sections of the EPU and involved in formulation of policies and strategies for the 5-year national development plan documents namely the 9th Malaysia Plan (MP), 10th MP and 11th MP. Achmed holds a Bachelor of Economics (Hons) from University Malaya and a Master of International Economics & Finance from the University of Queensland. 77 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE MOHAMMED PARACHA Head of Islamic Finance – Middle East & Africa Norton Rose Fulbright (Middle East) LLP Mohammed Paracha is a banking lawyer based in Dubai and is also the Head of our Islamic finance practice for the Middle East and Africa. Mohammed focuses on Islamic financial and banking transactions and has a broad range of transactional experience. Mohammed’s main area of skills is with cross-border transactions where he advises clients across a broad range of asset classes and industry sectors. His transactions are predominantly asset related involving real estate, ships, aircraft and project assets or complex structured transactions in new markets where tax, legal and Shariah principles need to be navigated in order to deliver optimum returns to Islamic investors. Mohammed trained and qualified with our practice and gained international recognition for his work as the sole legal member of the Bank of England’s committee on Islamic finance where he assisted the UK Government in establishing London as an international Islamic finance hub. Mohammed is recognised as a key individual by Chambers Global Directory 2017, which comments “Dubai- based Mohammed Paracha is a respected practitioner with a specialist focus on Islamic finance in the Middle East region. Market sources describe him as a “solid finance lawyer” and a “very good name in the market”.” Mohammed is a regular speaker at conferences and has appeared on various news media talking about Islamic finance and related topical issues. Mohammed is fluent in Urdu and Punjabi. 78 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE ZAMIR IQBAL Lead Financial Sector Specialist, Finance & Markets Global Practice World Bank Zamir Iqbal lead Financial Sector Specialist at the Finance and Markets Global Practice of the World Bank. He heads the World Bank Global Islamic Finance Development Center in Istanbul. He has more than 25 years of experience of risk management, capital markets, and asset management at the World Bank Treasury. Islamic finance is his research focus and he has co-authored several articles and books on Islamic finance on the topics of banking risk, financial inclusion, economic development, financial stability, and risk-sharing. His co-edited book, “Economic Development and Islamic Finance” was published by the World Bank in 2013. He earned his PhD in international finance from the George Washington University and serves as Professional faculty at Carey Business School of Johns Hopkins University. The World Bank Global Islamic Finance Development Center, Istanbul, Turkey Islamic Finance Development Center was opened on October 31, 2013 by President Kim. The Center serves as a Knowledge Hub from where the Bank generates and disseminates practical knowledge on how to make Islamic finance more relevant for growth and development. The Center also contributes to the design and delivery of technical assistance and advisory services on Islamic finance in Bank client countries. The Center focuses mainly on research and analytical work to generate knowledge on various aspects of Islamic finance, particularly how Shariah-compliant financing instruments can support inclusive growth and poverty reduction in our client countries. It also organizes workshops, conferences and seminars to disseminate research findings and to catalyze debate amongst various stakeholders in the industry. 79 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   DATO’ MOHD IZANI GHANI Executive Director Khazanah Nasional Berhad Dato’ Mohd Izani Ghani graduated from London School of Economics (LSE), University of London in 1991. Thereafter he obtained professional qualification from Association of Chartered Certified Accountants (ACCA) and was conferred fellowship in 2000. He is currently the Executive Director of Khazanah Nasional Berhad (Khazanah). On the funding front, he was instrumental in establishing ringgit Sukuk programs and landmark exchangeable Sukuk in various currencies for Khazanah. The world’s first exchangeable Sukuk into Telekom Malaysia shares of US$750 million was successfully launched in September 2006. This was followed by another blow-out success of exchangeable Sukuk into PLUS Expressways shares of US$850 million in June 2007. In March 2008, the company issued exchangeable Sukuk into a Hong Kong-listed stock of Parkson Retail Group for US$550 million. These were followed by many other landmark transactions thereafter. In June 2015, Khazanah launched an innovative social impact Sukuk in the Malaysian capital markets where the proceeds were used for Trust School Programme, an initiative to improve the quality of schools under Private Public Partnership with the Government. He is currently working on the next tranche of social impact sukuk to fund more Trust Schools under the programme. Dato’ Mohd Izani Ghani is also a board member of Malaysia Airports Holdings Berhad, Bank Muamalat Malaysia Berhad and other special purpose companies of Khazanah Nasional Berhad. 80 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   KHALID FERDOUS HOWLADAR Managing Director and Founder Acreditus Khalid Ferdous Howladar is the Managing Director and Founder of Acreditus, a boutique advisory practice created to serve the risk, rating and Islamic finance needs of Gulf and Islamic Banks, Corporates and Governments. With his global perspectives, he is a trusted authority in the fields of banking, GCC risk, structured and Islamic finance. Other interests include fintech and inclusive capitalism. Previously, Khalid spent 15 years at Moody’s Investor’s Service in senior roles covering securitisation, banking and Islamic finance in London and Dubai since 2007. Khalid was the GCC Team Leader/Senior Vice President for the Banking team responsible for rating a diverse portfolio of around 60 financial institutions. He was a Credit Committee Co-Chair for the European, Middle East & Africa Banking team and a senior member in GCC Sovereign and Sukuk committees. Prior to these leadership roles, he was an analyst in the structured finance team responsible for rating a diverse, $150 billion mix of GCC securitizations, leveraged loan, synthetic, high yield, asset-backed and project finance CDOs & CLOs. Concurrently, as Moody’s first Global Head of Islamic Finance, he was responsible for the formation and strategy of a new global and cross-business line team of Analytical, Commercial and Media representatives to provide holistic and insightful coverage of this fast growing and dynamic sector through strong research, outreach and risk analytics. His leadership took the firm to first place in the IFN Awards for best Rating agency in 2015 after six year’s absence. Khalid has provided over 100 risk briefings on both regional credit markets and Islamic finance to stakeholders such as the BlackRock, Fidelity, AIG, Threadneedle, Ashmore, ECM, LIM, Goldman Sachs, JPM AM, Franklin Templeton and BlueBay the amongst others. His research and views have often been quoted by the FT, Bloomberg, Reuters, WSJ, The Economist, CNBC Arabiya and other media outlets. He is a well-respected speaker at conferences with his passionate and dynamic style engaging audiences at the most senior levels in Washington and globally for institutions such as the World Bank, IMF, ECB, IIF, IsDB, AMF and Government shareholders of the IILM. He is a keen UAE educational supporter and has lectured students in Abu Dhabi (Paris-Sorbonne and New York Universities) and Dubai (Cass and London Business School) in risk, ratings, banking and Islamic Finance. Previously Khalid spent four years at Credit Suisse in the Emerging Markets Fixed Income Risk team. He holds an MSc in Finance from London Business School, an MSc in Advanced Information Technology and a BEng in Software Engineering both from the Imperial College of Science and Technology and Medicine. 81 Prior to joining the Bank, Mr. Ahmad was the Chairman and CEO at Pangea Growth Ltd. providing project finance and PPP advisory services in the Middle East and South Asia markets. Before that, he was the CEO of the Infrastructure Project Development Facility – a company owned by the Federal Finance Ministry of Pakistan to act as its central PPP unit. Mr Ahmad was also the founding member and acting Securities Commission Malaysia–World Bank Conference Head of the PPP Unit in the National Treasury of South Africa. Earlier, he was a Program Advisor with the Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Privatization Commission of Pakistan, after launching the first private sector airline of Pakistan in the capacity of the airline’s Vice President, Corporate Affairs. Appendix experience includesPROFILE 2 SPEAKER Mr. Ahmad’s country assignments in Bhutan, Brazil, Costa Rica, Egypt, Ghana, Kenya, Kuwait, India, Indonesia, Japan, Jordan, Maldives, Pakistan, Poland, Qatar, Saint Lucia, Saudi Arabia, Solomon Islands, Syria, Qatar, South Africa, USA, Uzbekistan and Yemen. ASHRAF MOHAMMED Assistant General Counsel and Practice Leader, Islamic Finance Asian Development Bank Ashraf Mohammed is Assistant General Counsel in the Office of the General Counsel of the Asian ASHRAF MOHAMMED Development Bank (ADB) and is Head of the Central and West Asia Region Legal Team. Mr. Mohammed Assistant General Counsel and Practice Leader, Islamic Finance is also the Practice Leader for Islamic Finance at ADB, overseeing all the ADB’s activities in this area. He Asian Development Bank is a UK qualified Solicitor with over 30 years of legal experience. Before joining ADB in 2004, Mr. Mohammed was European General Counsel for a NASDAQ listed international telecommunications company where he was responsible for corporate finance and debt restructuring in Europe. Mr. Mohammed has also been a partner in two leading commercial law firms in London, undertaking company and commercial work, corporate finance and mergers and acquisitions for a wide range of clients, including international banks and multinational corporations, as well as acting for insolvency practioners on insolvency matters. At ADB, Mr. Mohammed has worked in many countries across Asia on both private sector and public sector projects and programs, in numerous development sectors and financial intermediation. As ADB’s Practice Leader for Islamic Finance, he has advised on Sukuks and worked on Shariah transactions including the Islamic Financial Services Board Working Group on the Core Principle Standards on Islamic Finance Regulations. Mr Mohammed studied law at Kingston University in the UK where he obtained an LLB and is a member of the Law Society of England and Wales. 82 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE PROFESSOR DR ASHRAF BIN MD HASHIM Chief Executive Officer ISRA Consultancy Prof Dr Ashraf Bin Md Hashim is the Chief Executive Officer of ISRA Consultancy. He is also a Senior Researcher at International Research Academy for Islamic Finance (ISRA) and a Professor at International Centre of Education in Islamic Finance (INCEIF). Dr Ashraf currently sits on the Central Bank of Malaysia’s Shariah Advisory Council (SAC BNM) as Deputy Chairman and the Securities Commission of Malaysia’s Shariah Advisory Council (SAC SC). He is also the Chairman of Shariah Committee of Bursa Malaysia (Malaysia Exchange House). In addition, he also serves as member of National Fatwa Council of Malaysia, a registered Shariah adviser of Security Commission, advising a few REIT companies particularly in Singapore. He is also a member of Shariah Committee for Tabung Haji (Pilgrimage Fund) and Association of Islamic Banking Association Malaysia (AIBIM). He is actively involved in many consultation works related to Islamic finance in Malaysia and abroad, among others the Islamic Bank of Australia (Project) and Noor Takaful Nigeria. Recently, he has also been appointed as Chairman for Panel of Experts in Muamalat Matters under the Islamic Development Division, Prime Minister Department. Dr Ashraf obtained his PhD (Islamic Law) from University of Birmingham, United Kingdom. His Masters in Fiqh and Usul Fiqh from University of Jordan and his BA in Shariah from Islamic University in Medina, Saudi Arabia. 83 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE FARIS H. HADAD-ZERVOS Representative to Malaysia Country Manager, Malaysia, East Asia and Pacific Faris Hadad-Zervos is the World Bank Country Manager for Malaysia, based in Kuala Lumpur. Hadad-Zervos, a US national, joined the World Bank in 1996 with the Private Sector Development Department. He served as Manager of the Technical Cooperation Program with the Gulf Cooperation Countries (2000-2003), Head of Mission for Iraq (2003-2005), Operations Manager for the West Bank and Gaza (2005-2008), Acting Director for Fragile States in the Operations Department (2010-2011) and Country Manager for Bolivia adad-Zervos (2012-2015). In 2008, Hadad-Zervos took a leave of absence from the World Bank to serve as the Deputy ative to Malaysia Head of the Quartet Office for the Middle East Peace Process, based in Jerusalem. anager, Malaysia, East Asia and Pacific Hadad-Zervos is the World Bank Country Manager for Malaysia, based in pur. Mr. Hadad-Zervos, a US national, joined the World Bank in 1996 with Sector Development Department. He served as Manager of the Technical n Program with the Gulf Cooperation Countries (2000-2003), Head of r Iraq (2003-2005), Operations Manager for the West Bank and Gaza 8), Acting Director for Fragile States in the Operations Department (2010- Country Manager for Bolivia (2012-2015). In 2008, Mr. Hadad-Zervos took absence from the World Bank to serve as the Deputy Head of the Quartet he Middle East Peace Process, based in Jerusalem. -Zervos holds a Master's Degree in Economics from George Mason and a Master's Degree in Finance from George Washington University. 84 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   ABAYOMI A ALAWODE Head of Islamic Finance World Bank Abayomi Alawode joined the World Bank in 1997 as a Young Professional and is currently Head of Islamic Finance in the Bank’s Finance and Markets Global Practice. Previously, he worked in various capacities including as Practice Manager (Financial Systems Practice), Lead Financial Sector Specialist (East Asia and Pacific Region) and as Program Leader/Senior Financial Specialist (World Bank Institute). He also served as Adviser, Financial Stability at the Central Bank of Bahrain from 2006 to 2010. Before joining the World Bank, Abayomi was a Lecturer in Economics at the Obafemi Awolowo University, Ile-Ife, Nigeria (1990-1994) and an Instructor in Development Economics at the University of Cambridge. He holds a BSc and MSc (both in Economics) from the Obafemi Awolowo University, Ile-Ife, Nigeria and an MPhil in Development Studies from the University of Cambridge, England. He is the author of several academic papers on monetary and financial sector issues. 85 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   ARSHAD MOHAMED ISMAIL Head of Global Banking Business, Group Islamic Banking Maybank Islamic Arshad Ismail is Head of Global Banking Business, Group Islamic Banking at Maybank. Maybank Islamic is the largest Islamic bank in Malaysia and also one of the largest Islamic banks globally. Arshad started his career as a lawyer in the mid 90s with a focus on corporate and commercial law, and also Islamic finance. He subsequently joined CIMB Islamic in 2003 as one of its pioneer members and spent a significant amount of time originating, structuring and executing Sukuk transactions. Arshad then relocated to the United Arab Emirates to take on the role of Global Head of Sukuk at HSBC Amanah. During his time there, Arshad and his team successfully originated, structured and executed many Sukuk transactions in the Gulf Cooperation Council region and Asia. HSBC Amanah’s dominance in the Sukuk market under Arshad’s leadership was acknowledged when Euromoney awarded HSBC Amanah the Best Sukuk House Award in 2007. After HSBC Amanah, Arshad had stints in Saudi Arabia and again in the United Arab Emirates where he focused on real estate fund management, corporate finance and investment banking before returning to Malaysia at the end of 2011. Arshad holds a LLB (Hons) degree from the International Islamic University, Malaysia and a Master of Business Administration (MBA) from the London Business School. He was also elected to the Securities Commission – Oxford Centre for Islamic Studies (OCIS) Visiting Fellowship in Islamic Finance at OCIS, University of Oxford for the academic year 2015/16. 86 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE JULIUS CAESAR PARREÑAS Senior Advisor Nomura Research Institute J C Parreñas is Senior Advisor at Nomura Research Institute. He coordinates the Advisory Group on APEC Financial System Capacity Building, the Asia-Pacific Financial Forum (APFF), the Asia-Pacific Infrastructure Partnership (APIP) and the Financial Infrastructure Development Network (FIDN). He regularly represents the APEC Business Advisory Council (ABAC) in the APEC Finance Ministers’ Process. From 2014 to August 2016, he was Senior Advisor at Nomura Securities Co, Ltd and Nomura Institute of Capital Markets Research. From 2009 to 2014, he was Advisor on International Affairs of the Bank of Tokyo-Mitsubishi UFJ, Ltd and Senior Advisory Fellow of the Institute for International Monetary Affairs in Tokyo. From 1998 to 2009, Dr Parreñas was Senior Advisor to the Chairman of Chinatrust Financial Holding Co, Ltd, Policy Advocacy Coordinator of the Asian Bankers’ Association and alternate member of the APEC Business Advisory Council from 2000 to 2009. Previous to this, he served in various positions, among others, as Executive Director of the Center for Research and Communication in Manila, Executive Director of the ASEAN Free Trade Area Advisory Commission under the Office of the President of the Republic of the Philippines, and professor at the University of Asia and the Pacific Graduate School of Economics. He was an advisor and consultant to several international, public and private institutions and major companies from Asia, Europe and America. He received his PhD, magna cum laude, from the Ludwig Maximilian University in Munich, Germany in 1988. He has authored over 100 publications on international finance, economics and trade. 87 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE AAMIR A REHMAN Managing Director Fajr Capital Aamir A Rehman is a consultant to the World Bank Group on Islamic finance and infrastructure funding. Mr Rehman has served as an advisor to the UN World Humanitarian Summit, the International Fund for Agricultural Development, the Islamic Development Bank, and the Islamic Financial Services Board. He is a co-founder and shareholder of Fajr Capital, a private equity group with over $700m in capital, where he was a managing director from 2009 to 2016. His prior roles include serving as global head of strategy for HSBC Amanah, the Islamic finance business of the HSBC Group. Mr Rehman is author of the books Gulf Capital & Islamic Finance: The Rise of the New Global Players (McGraw-Hill 2009) and Dubai & Co.: Global Strategies for Doing Business in the Gulf States (McGraw-Hill 2007). He holds a bachelor’s degree from Harvard College, a master’s degree from the Harvard Graduate School of Arts and Sciences, and an MBA from the Harvard Business School. 88 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   RAFE HANEEF Chief Executive Officer CIMB Islamic Bank Rafe Haneef has been currently appointed as the CEO of CIMB Islamic Bank. He was previously the CEO of HSBC Amanah Malaysia and the Managing Director of HSBC Amanah Global Markets in Asia Pacific. He is credited leading landmark sukuk transactions for various sovereigns, supranationals and corporates such as Malaysia, Qatar, Indonesia, the IDB, the World Bank, Sime Darby, Axiata, and Emirates. Previously Rafe was the Head of Islamic Banking for Citigroup Asia based in Kuala Lumpur, where he was responsible for developing Malaysia as a regional Islamic finance hub for Citigroup and expanding its Islamic business footprint across the region. He also established the Global Islamic Finance Department at ABN AMRO based in Dubai. His other previous roles include Managing Director at Fajr Capital. Rafe read law and Shariah at the International Islamic University in Malaysia. He was admitted to the Malaysian Bar and was practicing law in Malaysia, specialising in Islamic finance, before later pursuing his Master of Laws at Harvard Law School and subsequently qualified to the New York Bar. 89 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE TENGKU MUHAMMAD TAUFIK Senior Executive Director PricewaterhouseCoopers Advisory Services Sdn Bhd Tengku Muhammad Taufik leads the Oil & Gas industry group in PwC Malaysia. Prior to joining us, he worked in the oil & gas industry, primarily focused on capital structuring and valuations of projects across the value chain and was also the CFO in a listed oil & gas services company. He also plays a significant role in our work relating to the Trans-Pacific Partnership Agreement and our Deals business with both the public sector and the government-linked companies, and continues to lead work in the Capital Projects & Infrastructure space in these areas. Taufik holds a BA (Hons) in Accounting and Finance from Strathclyde University, and is a member of the Institute of Chartered Accountants in England & Wales. Taufik joined PwC in 2015 after accumulating 15 years’ experience in the Oil & Gas industry. 90 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE   PROFESSOR WALID HEJAZI Academic Director University of Toronto Prof Walid Hejazi is an Associate Professor of Business Economics, and Academic Director, at the Rotman School of Management, University of Toronto. He has developed and teaches a successful MBA course in Islamic Finance, the first such course in Canada. He is extensively involved in the move to enhance the prevalence of Islamic Finance in Canada. He is currently writing a book on Islamic project finance, has several ongoing research projects in Islamic Finance, and has 2 doctoral students pursing research in the area. He has published over 50 articles in academic peer reviewed journals, has advised several Canadian and foreign governments on themes related to international trade, foreign investment, international tax structures and global competitiveness, and has appeared many times before Canadian parliamentary committees on these themes. He has also delivered lectures in over 30 countries. 91 Securities Commission Malaysia–World Bank Conference Islamic Finance and Public-Private Partnership: Viability, Opportunities and Recommendations Appendix 2 SPEAKER PROFILE MICHAEL J T MCMILLEN Global Head of Islamic Finance and Investment Curtis, Mallet-Prevost, Colt & Mosle LLP Michael J T McMillen is Global Head of Islamic Finance and Investment of the international law firm of Curtis, Mallet-Prevost, Colt & Mosle LLP. He is internationally recognized for his work in Islamic finance and project and infrastructure finance. Michael teaches Islamic finance at the University of Pennsylvania Law School, The Wharton School and other institutions. Michael is the author of ISLAMIC FINANCE AND THE SHARI`AH and a book on the history of lease financings and nineteenth century American history that will be released in 2017 He is a two-time recipient of the Euromoney award for Best Legal Advisor in Islamic Finance and has received the Sheikh Mohammed Bin Rashid Al-Maktoum award for Outstanding Contributions to Islamic Finance. He twice served as Chair (and was the founding Chair) of the Islamic Finance Section of the American Bar Association. Michael received his MD from the Albert Einstein College of Medicine, his JD from the University of Wisconsin Law School, and his BBA from the University of Wisconsin – Madison. 92