The PFI and Islamic Project Finance: Exploring compatibility

Public-Private Partnerships (PPP) or Private Finance initiatives (PFI) as it is referred to in some regions has become the most favoured strategy for the provision of public infrastructure by governments across the globe. The reasons for adopting this procurement strategy has been to reduce public sector borrowing, and provision of infrastructure faster than would have been possible relying on public sector finances. However, the use of high cost interest-bearing conventional project finance has cast a shadow of distrust between the public and their government resulting in expensive buy-backs, renegotiations and in extreme cases, cancellation of the projects. This paper explores the compatibility of the PFI and interest-free Islamic project finance. The paper argues that PFI, which is used for the provision of public infrastructure for the social well-being of society, is compatible with the intent of Islamic finance.