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A way for Governments to finance their development expenditures without increasing their public debt.
Islamic finance can represent a viable (though non-exclusive) alternative source of funding for Western Governments: while budget constraints are tighter than ever foreign capital is still needed to finance economic growth and preserve future jobs.
Issuing Sukuk would have no impact whatsoever on the country’s public debt.
Issuing Islamic titles or Sukuk out of Kuala Lumpur, Malaysia may currently be the most financially appropriate way to do it. Furthermore, the type of assets that may be financed in this way, such as major infrastructures is close to limitless.
This enables Governments and especially E.U. member States to finance their investments without degrading their public debt as defined by the Maastricht criteria.
Indeed, a Sukuk is not in itself an ‘Islamic bond’ but rather a certificate of co-ownership of a tangible asset or of its usufruct. The sukuk would be issued by an ad hoc company or Special Purpose Vehicle (SPV) and underwritten by investors in the Middle-East and South-east Asia; the SPVs would in turn lease the assets out to the Government as already practiced today in the Public/Private Partnerships.
Sukuk are in fact not an unknown financial instrument in Western economies as it is only after all a form of Asset Backed Security whose sole characteristic is that Muslim investors can subscribe to it.
Lastly, it should be noted that the principles as described above can also apply to local Governments for them to finance their investments. |
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