Safe passage of urban development from Islamic banking route
Urban economics is one of the macroeconomics branches focusing on the study of spatial structure of a city and families and companies’ location and it analyzes issues such as income distribution policies for crime reduction, urban training, public transport, urban management in the field of housing, and financing urban projects by using economic tools. Financing urban projects is more important than other issues, since no plan becomes operational without financial support and funding.
In the meantime, using bank resources is one of the financing methods of urban projects along with issues like urban toll, revenues of companies under municipalities and local governments, financing support of central government. But, Islamic banking is safer and more attractive route for participating in urban projects due to its extent of financing instruments compared to conventional banking.
Using bank resources in banking is often done by interest-bearing loan agreement, which on one hand provides the causes of crisis and sharp fluctuations in fiscal and monetary markets particularly in commercial periods and on the other hand increases financing costs. Islamic banking has provided a suitable solution to decrease destructive effects of conventional banking based on interest on the basis of following money sector from real and actual sector of economy by presenting a set of tools like legal and civil partnership contracts, mudarabah, murabaha and installment sales, rent on a condition of ownership, SOKUK, and etc.
Currently, financial instruments provided by Islamic banking for financing governmental and urban projects are used in many Islamic countries and even Non-Islamic ones. The methods have been met with a good reception. For example, SOKUK can be referred issued in Qatar, UAE, Sudan, Bahrain and even Germany.
For Instance, metro projects can be easily provided by issuing SOKUK to finance the cost of buying wagons, building station and etc. Thus, the ownership of purchased wagons is for the owners of SOKUK and municipalities pay a fixed amount as rental for the use and installation of wagons to any person proportional to the share of ownership. This inherently can lead to greater public participation in the process of urban development to solve the main problem of urban development which is the financing and the cost of their implementation.
In addition to the items listed, public participation in urban projects for Islamic bankers have also particular utility. Currently, one of the main difficulties surrounding the actual implementation of contracts is lack of transparency of information and as a result moral hazard and bad choices. As municipal and governmental projects are more transparent than private projects, this concept reduces the problems and the willingness of bank managers in leading facilities toward urban projects.
Source: Tasnimnews agency
news Code: 880519
Date : October 6, 2015
