ISLAMIC FINANCE
Preparing for Leadership With objectives to diversify public debt via policy frameworks and an established issuance infrastructure, Saudi Arabia is gearing up its capital markets and moving toward a front running position in Islamic finance both at home and overseas By Mushtak Parker
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audi Arabia is increasing its involvement in and leadership of the Islamic finance industry both at home and abroad. The Kingdom’s Islamic finance policy has rapidly evolved over the last few years intertwined by several key funding drivers for the economy and financial system per se. These include the demands of the ambitious Saudi Vision 2030 including the futuristic Neom Mega City Project and encompassing the Kingdom’s economic and social reform agenda, estimated at a total cost of SAR12 trillion (US$3.2 trillion); the MENA region’s US$1.6 trillion infrastructure project pipeline; the objectives of Riyadh’s Fiscal Balance Programme to bridge funding gaps in the Budget and Financial Sector Development Programme, one of Vision 2030’s realization programmes; push towards digitisation; a robust domestic investor base and the fact that foreign
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investors can now invest in local currency Sukuk through Tadawul (Saudi Stock Exchange), which also has an active secondary trading platform. Riyadh cannot finance the above through revenues alone. It also looking towards raising US$55bn through a strategic privatisation programme, of which US$16.5bn will be in the form of public-private partnerships. At the “G20 Infrastructure Investors Dialogue: Financing Sustainable Infrastructure for the Recovery” in June, Saudi Minister of Finance Mohammed Al-Jadaan emphasized that “securing financing for sustainable development and quality infrastructure are ongoing concerns for the G20. The persistent infrastructure financing gap calls for swift actions in this area.” The international impact of Riyadh’s Islamic finance policy is implicit. At the September 2021 Annual Meetings of the Islamic Development Bank (IsDB) Group in Tashkent, Saudi Arabia teamed
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up with the Uzbek Government and the IsDB to launch an US$100m Economic Empowerment Fund for Uzbekistan (EEFU), to which IsDB is contributing US$20m, Saudi Arabia US$45m and the Uzbek government US$35m. Financing will include credit lines, M u ra b a h a fa c i l i t i e s a n d e q u i t y participation. The Saudi rationale is to support SMEs through this debut impact investment fund in Uzbekistan, but at the same time engage the participation of Saudi companies in export and investment as part of Riyadh’s policy to increase the contribution of the non-oil sector to GDP and reduce dependency on oil. According to Saudi Eximbank, non-oil exports increased by 52% year on year in Q2 2021 to SR65.66bn (US$17.51bn). The aim, says Khalid Al-Falih, Saudi Minister of Investment, is to gradually increase the fund size to US$500m. On the demand side, the record 3-tranche US$6bn debut international
