Islamic Finance and the Resources Sector : A Natural Fit for Project Finance

The investment profile and particularly the horizon of traditional debt financing for projects seldom matches the returns on assets, particularly in the resources and infrastructure sectors where assets have a lengthy construction phase before realising a return. This mismatch in investment duration and risk-return profile is a key weakness of the Western approach to limited recourse borrowing under project financing conventions. The motives underlying Islamic finance however differ from the Western approach permitting longer-term investments and profit-sharing arrangements, subject to the strict practice of Shari ah law. This paper highlights the advantages of Islamic investment practices over traditional approaches in project financing which can potentially fill a significant gap in funding options for firms in the global resources sector.