As reported in an article titled “Tapping the Renewable Energy Market,” some Islamic banks are looking to support renewable energy including hydropower, solar and wind energy. Finance is a crucially important component of building a green infrastructure and this is even more true in the context of economic difficulty. Islamic lending institutions that create financial mechanisms will benefit the growth of renewable energy. In the Middle East and North Africa (MENA) solar power projects are driving major new investment. With projects like Abu Dhabi’s Masdar City and the German-led Desertec Industrial Initiative (DII) it is expected that the region will be able to export energy throughout the region and into Europe. The Shams Power Co. alone is partnering in a $600 million investment to build one of the world’s largest concentrated solar power (CSP) projects.
Sustainable water projects are also garnering interest from Islamic banks. One bank in particular diverted part of its real estate holdings into trade finance which led to the first Shari’ah-compliant water-focused investment strategy.
Through the UK-based Islamic investment bank Gatehouse Bank Plc people can now invest in sustainable-oriented companies that offer technology, products and services throughout the water industry. Ocean water desalination is another area which offers tremendous potential for growth. Saudi Arabia is planning to convert all of its seawater desalination plants to renewable energy by 2019. This could attract more than half a trillion dollars in private sector investment over the next five years.
Recently, Islamic banking saw the release of a green sukuk for the financing of climate change investments and renewable energy projects. The Climate Bonds Initiative, the Clean Energy Business Council of MENA, and the Gulf Bond and Sukuk Association launched the Green Sukuk Working Group to help market and develop the best practices to promote the issuance of green Sukuk.
Bahrain-based Arcapita Bank, one of the first Islamic financiers to venture into the green market, it created a joint venture (JV) with Englefield Capital and RWE npower (formerly RWE Innogy) in 2004. In 2007 Arcapita divested its one-third share of JV Zephry Wind Power LLC saying that it had been one of the firm’s most profitable investments.
Islamic banking focused on cleantech like renewable energy could significantly contribute to regional sustainability and help to generate significant returns for investors.
(Block And News Agency / 24 July 2012)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com