The current practices of islamic build operate transfer (BOT) financing contracts

A legal analysis

Ruzian Markom, Engku Rabiah Adawiah Engku Ali, Aznan Hasan

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Build Operate Transfer (BOT) is a kind of legal mechanism of privatisation. It is a business venture between the government and the concessionaire, with the ownership of the project asset transferred to the government at the end of the concession period. In Malaysia, a decade after the beginning of privatisation was marked by the emergence of capital market which consisted of conventional and Islamic capital market. Both Islamic and conventional capital markets facilitate the privatisations and infrastructure projects by the issuance of bonds, equity financing securities and Islamic securities. Islamic BOT financing is a new type of contract in contemporary Islamic law, and it is resulted from the modern infrastructure development needs. Although the financing of BOT is new to the Islamic law, the specific contracts used in the structure are common to the Islamic principles of muamalat (i.e. Islamic transactions) like sale, partnership and lease contract. The objective of this work was to study the current practices of the Islamic BOT financing contracts in Malaysia and other countries. The study adopted an analytical approach by assessing the strengths and weaknesses of the financing contracts via the sale, partnership, and lease contract. Finally, the findings showed that sale-based financing is more popular to the Project Company of BOT in Malaysia due to the fixed return and deferred payment mechanism. On the other hand, the mudarabah and musharakah contract provides an alternative to the project since both structures are in the form of business venture and lease-based financing which exploit the beneficial interest of an asset.

Original languageEnglish
Pages (from-to)73-85
Number of pages13
JournalPertanika Journal of Social Science and Humanities
Volume20
Issue numberSPEC. ISS.
Publication statusPublished - Jun 2012

Fingerprint

capital market
sale
privatization
Malaysia
assets
equity financing
infrastructure development
Law
concession
Build-operate-transfer
Financing
transaction
infrastructure
Lease
Privatization
Capital markets
Venture
Islamic law
Government
Assets

Keywords

  • Build operate transfer (BOT)
  • Islamic build operate transfer (BOT) financing
  • Islamic contract
  • Islamic financing
  • Islamic securities

ASJC Scopus subject areas

  • Arts and Humanities(all)
  • Business, Management and Accounting(all)
  • Economics, Econometrics and Finance(all)
  • Social Sciences(all)

Cite this

The current practices of islamic build operate transfer (BOT) financing contracts : A legal analysis. / Markom, Ruzian; Ali, Engku Rabiah Adawiah Engku; Hasan, Aznan.

In: Pertanika Journal of Social Science and Humanities, Vol. 20, No. SPEC. ISS., 06.2012, p. 73-85.

Research output: Contribution to journalArticle

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