Islamic finance for infrastructure development: Concepts and evidence

Islamic finance embodies a principled approach to investment and financing that prioritizes risk sharing, ethical considerations, social welfare, and financial inclusion. This chapter delves into the nature of infrastructure financing within the Islamic financial framework, exploring the unique characteristics that distinguish it from conventional financing methods. It elucidates the various instruments utilized in structuring such financing, such as Murabaha, Ijarah, Istisna'a, Musharakah, Mudharabah, and a combination of contracts such as Sukuk, and assesses their applicability and effectiveness in infrastructure projects financing. This chapter adopts both qualitative and quantitative methods of reasoning and utilizes content analysis to explore the potential role of Islamic finance in infrastructure development or project financing. Through an examination of case studies, this research highlights practical examples of how Islamic finance has been employed in infrastructure financing across different regions and sectors. Furthermore, the paper addresses the challenges faced in this field, including regulatory, legal, and market perception issues, while also discussing the prospects and potential for growth and innovation in Islamic infrastructure financing. Some policy recommendations are also provided to unlock the potential of Islamic finance in infrastructure development.