Islamic Development Bank exploring tie-up with AIIB on use of sukuk in infrastruture financing: MAS

SINGAPORE - The Islamic Development Bank (IDB) is exploring a potential link-up with the planned Asian Infrastructure Investment Bank (AIIB) that could spur the use of sukuk to fund some of Asia's infrastructure needs, a Monetary Authority of Singapore (MAS) official said on Wednesday.

MAS deputy managing director Jacqueline Loh said in a speech at the World Islamic Banking Conference Asia Summit in Singapore that such a move would tap a growing pool of Islamic investors across the Middle East and Southeast Asia.

She said also that the Asian Development Bank (ADB) has been working with the IDB to provide Islamic infrastructure financing solutions to their member countries in these two regions. This includes developing and participating in innovative financing structures such as the Islamic Infrastructure Fund and the International Islamic Liquidity Management Corporation.

Ms Loh said the asset-backed nature of Islamic finance makes sukuk ideal for financing of infrastructure projects and would complement ongoing work by Singapore to enhance the bankability of infrastructure projects in the region and involve more capital market participants.

Singapore's central bank is working with the Islamic finance industry and other government agencies to provide clarity and certainty in the regulatory and tax treatment for financing structures that are Shariah compliant, she said. Industry players have suggested pre-approved standardised templates that could speed up issuance of common sukuk structures, for example, she said.

Ms Loh noted that MAS has offered $600 million under its sukuk facility since the programme was established in 2009. The programme provides banks with regulatory assets that can facilitate the banks' own Islamic finance activities.

An estimated US$60 billion will be needed per year until 2022 to meet the basic infrastructure needs in Asean alone, she added. MAS plans to continue to strengthen Singapore's Islamic finance regime and capabilities to support opportunities between Asia and the Middle East.