Common Islamic Finance Structures used in Project Finance
Overview
This Practice Note considers the various Islamic or Sharia compliant structures typically seen in project financings and looks at the documentation involved in those structures.
It assumes a working understanding of the key principles of Islamic finance.
It also assumes a working understanding of typical conventional project finance frameworks and participants.
The structures outlined below are somewhat more complex, involve more moving parts and entail parties signing up to a greater number of documents than their conventional equivalents. They are, however, established forms of financing with which most financial institutions and law firms in the market are familiar.
Practical Guidance
Greenfield projects - Istisna'a-Ijarah
Typically, greenfield projects (i.e., projects on unused lands where there is no need to remodel or demolish existing structures) that entail a lengthy construction or development phase followed by an operating phase (for example, infrastructure, power, transport, plant and machinery) are financed using a two-phased Istisna'a-Ijarah structure: an Istisna'a or “procurement” arrangement applies to the project's construction or development phase and an Ijarah or “lease” arrangement to its operating phase.
Istisna'a