Islamic Versus Conventional Infrastructure Project Finance vis-à-vis Time-Overrun Issues

Abstract

Islamic finance checks and balances shape the way infrastructure is developed. In evaluating three MDBs (IsDB, ADB, and WB), even under conditions featuring the same project cycle, procurement guidelines, and collateral, the merits of Islamic finance emerge from disbursement procedures and manifest in the legal context. Islamic finance ensures fairness by correcting the imbalance found in conventional finance contracts, which favor lenders. Nevertheless, the same merit emanating from legal-financing agreements is also the root cause of time-overrun problems. Besides, Islamic Istisna contracts for infrastructure development make banks responsible for assets produced after project completion, and hence encourage observance of strong environmental and social safeguard measures. This feature of Istisna alone shows the embedded responsible financing feature in Islamic finance.