Traffic is a growing concern in Malta and is a headache for any Maltese citizen. Whether it’s your daily trip to work or a casual drive, at a certain point in time, you are going to come to a halt, stare into oblivion, waiting for the front car’s brake lights to turn off so you could move a couple of inches towards your desired destination. The Prime Minster admitted that Malta’s infrastructure needs to change, as currently, Public Transport is being frowned upon by many Maltese due to the reliability issues it posed a few years back. Hence, the Prime Minister announced the proposal of a new project, which would see the setting up of a railway, also stating that there may indeed be different alternatives to this proposal.
Having a project of this magnitude requires substantial amount of financing. The Maltese Government’s budget revenue finances most of the current infrastructure projects in Malta along with co-financing from the European Structural and Investments Funds. As this may seem to be a tried and tested formula to finance these kinds of projects, we may also have an opportunity to tap into a different method of financing, Islamic Financing.
Infrastructure projects attracts investors, that’s a fact. Financing the proposed railway project through Islamic finance will most definitely attract entities that invest only in Shariah compliant investments. Moreover, investors who are more accustomed to dealing with conventional products may also look into this kind of investment. Islamic finance has numerous ways to finance national scale projects; one of the most popular is called the Sukuk Al-Ijarah.
Sukuk Al-Ijarah is generally considered an alternative to conventional bonds. The main difference between Sukuk Al-Ijarah and conventional bonds is that the former does not involve the payment of fixed interest/dividend rates. Furthermore, it needs to be asset based.
In order to do the railway, the Government will need to identify the path of land on which the rail will pass. This land may be used to generate the financing to build the rail as the Government may sell this land to an SPV in order to generate the capital. The Government would still be allowed the usufruct of this land whilst it will take the commitment to buy this land back after a number of years. The SPV will issue these alternative bonds (Sukuk) to the public and investors.
The SPV would rent the very same land back to the Government; hence the Government has to pay rent. Proceeds from the rent would be distributed to the Sukuk holders, proportionate to the amount invested in the Sukuk.
Investors will also be able to sell Sukuk they hold before the maturity date as the Sukuk would be listed on the Malta Stock Exchange who already has a Shariah Index.
Financing this national project through these means will open a multitude of opportunities. Since the Brits divorced the EU and paid their farewell, the Islamic finance sector in Britain is expected to take a blow. England may also lose passporting rights, which allows them to access the single market with no restrictions. Therefore, the British Islamic finance sector needs to find new nesting grounds within the EU and Malta, being an EU country, may very well be their desired alternative. Malta has all the prerequisites to become the European centre of Islamic finance, not only in terms of the financial infrastructure, but also its strategic geographic location, allowing Malta to link EU member states with Middle East and North African countries.