S&P: Islamic finance good fit to fund Asia’s infrastructure

KUALA LUMPUR: Islamic finance could play a key role and be a good match to finance Asia’s infrastructure gap, said Standard & Poor’s Ratings Services.

In a commentary titled “Will Islamic finance play a key role in funding Asia’s huge infrastructure task?” released on Monday, Oct 17, S&P said Asia’s solid economic growth and surging population would need significant developments and upgrades of its infrastructure.

It said that the Asian Development Bank (ADB) recently predicted that Asian economies require US$8 trillion over the next decade to fully address the region’s basic infrastructure needs, including developments in areas such as water, transportation, and energy.

S&P credit analyst Allan Redimerio said that with the outlook in global lending markets still uncertain, conventional financing such as bank funding might not be able to completely shoulder this huge financing task.

Redimerio said that alternatives, such as Islamic finance could play a key role.

“In our view, Islamic finance would be a good match for financing Asia's infrastructure funding gap, especially sukuk bonds.

“The Sharia principles governing Islamic finance ban speculation and specify that income must come from shared business risk. What's more, Islamic finance is based on the concept of assetbacking,” he said.

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