Islamic Project Financing and Sukuk
On October 22, HSE-Skolkovo Institute for Law and Development hold a seminar on Profit Sharing Contracts and Sukuk* structures in Islamic Project & Infrastructure Financing. Dr. Kabir Hassan, Professor of finance of the New Orleans University, was the key lecturer.
Prof. Kabir provided the audience with a brief overview of the current state of the Islamic finance market as per the latest IFSB report and shared the concept and specifics of the key sukuk structures, and its distinguishing characteristics. He outlined the advantages of sukuk both for issuers and governments, the latter often acting as the guarantors of sukuk issuances. Professor Kabir presented case studies of selected issuances, and talked about new concepts of sukuk suggested by researchers. In particular, infrastructure sukuk, the profitability of which is tied to the country's GDP.
The issue of guarantees, their necessity and compliance with the spirit of Islamic finance, caused a discussion among the participants in the chat. Subsequently, this question was addressed to Professor Kabir by Mr. Mikhail (Shamil) Orlov, the managing director of the Agrofinmost project. The lecturer explained the conditions imposed by the Sharia law relating to the guarantees. He noted that an excessive emphasis on guarantees continues to be a negative feature of the Islamic financial sector. The professor voiced the position that participants in the Islamic finance market should avoid copying the Islamic financial instruments prevailing in practice, which often imitate conventional instruments. Instead, they should create solutions that are closer in spirit to the investment market and meet the interests of real people.
According to Professor Kabir Hassan, in attempts to obtain high credit ratings, Islamic finance and sukuk markets participants often ignore the essence, the basis that should fill Islamic financial transactions. The participants of the seminar agreed on the need to continue the discussion on these topical issues. According to Mikhail (Shamil) Orlov, one of the topical areas for the application of the Islamic financial instruments is the solution of issues related to food security in the world. Islamic finance is primarily an ethical approach, it focuses on solving social issues, and cooperation with experts in the field of Islamic finance, such as Prof. Kabir Hassan, is very important to the project.
The seminar was attended by specialists and researchers of the Islamic financial market from Russia, Kazakhstan, Kyrgyzstan, Malaysia, Indonesia, Qatar, Nigeria and other countries. The seminar was also attended by Russian specialists in Islamic finance and law. Particularly, Mr. Alexander Kazakov and Mr. Andrey Juravliov, lecturers of Islamic finance disciplines in Russian universities and members of the Russian Association of Experts in Islamic finance (RAEIF), took part in the seminar and discussion. The moderator was Madina Kalimullina, RAEIF Executive Secretary, Senior Research Fellow at the HSE-Skolkovo Institute for Law and Development.
Video recording of the seminar will be available in the coming days.
Dr. M. Kabir Hassan is a financial economist with consulting, research and teaching experiences in development finance, money and capital markets, Islamic finance, corporate finance, investments, monetary economics, macroeconomics and international trade and finance. He provided consulting services to the World Bank (WB), International Monetary Fund (IMF), Islamic Development Bank (IDB), African Development Bank (AfDB), USAID, Government of Bangladesh, Organization of Islamic Conferences (OIC), Federal Reserve Bank, USA, and other organizations. He has more than 320 papers published in refereed academic journals to his credit. Dr. Hassan is co-editor (with M.K. Lewis) of Handbook of Islamic Banking and Islamic Finance, The International Library of Critical Writings in Economics (Edward Elgar, 2007), and co-editor (with Michael Mahlknecht) Islamic Capital Market: Products and Strategies (John Wiley and Sons, 2011). In 2019 five books edited or co-authored by Dr. Hassan the topics of emerging issues in Islamic finance in Malaysia, Waqa and Economic Revival, Expert Systems and Big Data analytics, and Islamic corporate finance. In 2016, he received Islamic Development Bank Prize in Islamic Banking and Finance.
* Sukuk are investment certificates, which are an alternative way of attracting project financing. The investors’ return depends on the cash flow generated by the project or the asset underlying the sukuk. The sukuk market is a fast growing segment of the Islamic finance market. In 2019, the total market for outstanding sukuk exceeded $ 500 billion (IFSB, 2020).
The seminar is held within the framework of the educational and research agenda of the Agrofinmost project aimed at implementing Islamic financial mechanisms for the sake of increased export of agricultural produce and improving the level of food security in the world.