Belt & Road Initiative to boost opportunities for Islamic Finance

Dubai: China’s Belt and Road Initiative (BRI) involving massive investments spanning 65 countries that contribute to 63 per cent of the world’s population and 29 per cent of global GDP is expected to boost the prospects of Islamic finance, according to an experts speaking at a panel at the Global Islamic Economy Summit.

The purpose of the BRI project is to link up countries in trade that involves movement of people, money and material across the borders and total infrastructure investments are estimated to exceed $8 trillion (Dh29.6 trillion).

BRI is expected to result in manifold growth in trade between China and the MENA region and massive scale infrastructure development across wider region covering central Asia. The trade between China and the UAE are growing rapidly. Last year the trade grew by about 15 per cent and the amount of trade is in excess of $33 billion.

“Trade and investment growth from BRI through the UAE is likely to open up huge opportunities for local and regional Islamic financial institutions. These institutions will be key players in catalysing mobilisation of funds of these projects,” said Dr Adnan Chilwan, Group CEO of Dubai Islamic Bank.

The UAE, already a major hub of trade corridor between China and the Middle East, Africa, Europe and beyond is expected to attract significantly larger volumes of trade transiting through the UAE.

The financing needs of project linked to BRI across various countries and jurisdictions are expected to be in several trillions of dollars. “The requirement is so huge that no one country or a few institutions can meet the financing requirements. This clearly gives opportunity for local, regional and global institutions to join in the financing efforts,” said Professor Nabeel Baydoun, Vice-Chancellor for Academic Affairs at Hamdan Bin Mohammad Smart University Dubai.

BRI in the Middle East region involves 13 countries and the cooperation between China and Arab region would focus on energy, core infrastructure trade and investment. As the Middle East adjusts to a lower oil price environment, governments in the region are speeding up both structural and fiscal reforms leading to opening up domestic markets to attract foreign investment across infrastructure, trade, investment, services and supply-chain.

While Chinese state-owned and commercial banks as well as multilateral banks will support BRI funding, banks across the countries that are involved in BRI will also play a significant role. This includes arranging bridge financing, equity capital markets, facilitating investments by infrastructure funds and private equity and managing longer-term bond issuance, including green bond issuance for renewable energy.

“The very principle of asset backed financing and risk sharing at the core of Islamic financing can play a significant role in raising funding for projects related to infrastructure development. The involvement of leading Islamic institutions from the Middle East are expected to help mobilisation of liquidity from the region,” said Professor Wang Yiwei, Director of Institute of International Affairs, Centre for European Studies, Renmin University.