Undoubtedly, financing urban management should be considered as the most important issue in urban economy. From one perspective, the concept of urban economy is how to manage revenues and city’s costs. The cost of urban development has increased with urbanization development and the expansion of urban area. Thus, other traditional strategies cannot meet the needs. Considering the paradigm of urban sustainable development, it is necessary to put aside traditional methods and take advantage of new financial instruments. Some experts have predicted and emphasized that cities need more than 40 trillion dollars investment until next 15 years and 25 trillion dollars of it would devote to developing cities.

Yet, there are different instruments for financing and each of them can prepare the ground for urban financing. Some of these methods are based on debt such as: participation paper, Sukuk, bonds. Some others are based on capital; share. Each of these methods has its specific feature as well.

Debt-based Methods are applied usually in short-term and medium-term projects and share method is often used in long-term projects since a part of the property of the project is in share method. Part of management rights and independency in decision-making belong to shareholders of the project.

Thus, share-based method is used when urban projects has constant and relatively long-term revenue. One of the used tools in capital-based method is using “project share” introduced by project Owner Company after studies and researches and predicts the profitability of the project and then, determines a base percentage as a profit and the final profit will be announce after the completion of the project.

Both methods are used in urban financing, but innovations and modern instruments in debt-based methods results in expansion of this way in urban projects.

For instance, an instrument such as Sukuk has attracted more than 125 billion dollars in 2014 and it is predicted that it would reach to 150 to 175 billion dollars in 2015. Different countries use this tool even non-Islamic state such as England, the U.S, Japan, and even the World Bank. On the other hand, consolidated tools have been created. Instruments such as municipal development funds were experienced in countries like Malaysia, the U.S., Netherlands, Colombia, Czech Republic, etc. with useful results.

It should be considered that economic, social, and cultural structures of cities in different countries are very important in choosing financing methods. Debt-based methods may be more effective in a country while capital-based ones may meet the needs better because of certain feature in another country. For example, financing through bonds is popular in England cities whereas the Municipality of Sao Paulo, Brazil had successful experience in financing the infrastructures through selling shares.

Source : Farhikhtegan Newspaper