Financing of infrastructure projects through sukuk and suggestions for Afghanistan

Nowadays, infrastructure projects primarily employ three types of financing: project financing, corporate financing, and public financing. Infrastructure projects that are transferred to the private sector typically require the use of project financing methods and corporate financing, even while public financing is still made within the framework of a state's development budget and using state resources. Equity, bonds, and loans are commonly utilized financing tools in corporate or project finance. However, in undeveloped countries like Afghanistan, all three strategies are nearly inefficient. Because, while the state's resources are insufficient to cover basic budget needs, the private sector's capacity is inadequate to fund large-scale infrastructure projects. In addition, there is no local organized capital market for bond or stock transactions. Conventional financial instruments, on the other hand, are barred from entering the potential capital market due to religious concerns. For a long time, Afghanistan's budget has been dependent on international aids. The majority of these assistance funds were restricted and did not go toward funding infrastructure. For instance, Afghanistan has not been able to build its infrastructure despite receiving financial aid from united nations since 2001. It has encountered significant deficiencies, particularly in the areas of energy, transportation, health, and education. Regarding the financing techniques and target sector employed by the donors, it is recognized that the resources mentioned are intended primarily for the financier's personal gain and are not extensively utilized in national infrastructure projects. Therefore, an alternative financing method that complies with societal cultural norms while also improving the country's infrastructure and ensuring social welfare must be applied. This approach is exclusive to the Islamic financial system; sukuk, also known as Islamic bonds, are advised as an appropriate and substitute. However, the applicability of sukuk models varies from nation to nation when considering various categories of infrastructure, their costs, benefits, and drawbacks. So, the purpose of this research is to suggest a viable sukuk model for financing infrastructure projects in Afghanistan. This study discusses the applicability of sukuk models for financing infrastructure projects in Afghanistan and suggests appropriate models considering the country's infrastructure situation. As a result, in the first stage, the Musharakah, Mudaraba, and Murabaha sukuk models for small and medium-sized economic infrastructure projects, the Ijarah sukuk model for large-scale projects, the Istisna and Wakalah models for social infrastructure projects, and the hybrid sukuk model for low-cost projects are proposed as applicable models. In the study, a case study methodology based on the most popular qualitative research strategy in the social sciences has been used. despite this, document review was used as the data collection method.