TY - JOUR
T1 - Financing PF2 projects
T2 - Opportunities for Islamic project finance
AU - Zawawi, Noor Amila Wan Abdullah
AU - Ahmad, Mahadi
AU - Umar, Abdullahi A.
AU - Khamidi, Mohd Faris
AU - Idrus, Arazi
PY - 2014
Y1 - 2014
N2 - Recently the popular Private Finance Initiatives (PFI) was reformed into what is now known as Private Finance 2 (PF2). The move came against the backdrop of the unpleasant experiences which have bedeviled the PFI model leading to huge public sector bail-out and in some cases expensive buy-back schemes. One of the Principal areas being reformed is the financing structure which has often had a large portion of bank debt. The cost of capital on this significant portion of bank debt, studies have shown, has been responsible for the higher capital costs on past PFI projects. The proposed ideal financing structure for PF2 must be low cost funds such as pension funds and insurance funds. While this paper does not go into detail on how to structure a PF2 project using Islamic finance, it however argues that Islamic project finance holds a better promise for the financing of future PF2 projects. This is because apart from being interest-free, it also entails the sharing of losses should they occur, an act conventional project financiers are highly averse to doing.
AB - Recently the popular Private Finance Initiatives (PFI) was reformed into what is now known as Private Finance 2 (PF2). The move came against the backdrop of the unpleasant experiences which have bedeviled the PFI model leading to huge public sector bail-out and in some cases expensive buy-back schemes. One of the Principal areas being reformed is the financing structure which has often had a large portion of bank debt. The cost of capital on this significant portion of bank debt, studies have shown, has been responsible for the higher capital costs on past PFI projects. The proposed ideal financing structure for PF2 must be low cost funds such as pension funds and insurance funds. While this paper does not go into detail on how to structure a PF2 project using Islamic finance, it however argues that Islamic project finance holds a better promise for the financing of future PF2 projects. This is because apart from being interest-free, it also entails the sharing of losses should they occur, an act conventional project financiers are highly averse to doing.
KW - Infrastructure
KW - Islamic project finance
KW - PF2
KW - PFI
KW - Privatisation
KW - Public services
UR - http://www.scopus.com/inward/record.url?scp=84923298371&partnerID=8YFLogxK
U2 - 10.1016/j.proeng.2014.07.015
DO - 10.1016/j.proeng.2014.07.015
M3 - Article
AN - SCOPUS:84923298371
SN - 1877-7058
VL - 77
SP - 179
EP - 187
JO - Procedia Engineering
JF - Procedia Engineering
ER -