Infrastructure Hub Project Pipeline, a database of future and current government infrastructure projects that allows projects to be tracked from conception to completion (https://pipeline.gihub.org/).

# _Deep and liquid secondary market_

A deep and liquid secondary market is important for the development of the _sukuk_ market in general and the green _sukuk_ market in particular. The liquidity of an instrument is generally measured by trading volume, trading frequency, bid-ask spreads, quote sizes, trade sizes, and price impact coefficients (Petrella and Resti 2017). Tight bid-ask spreads give investors an indication on the efficiency of a market; significant widening of the spread may be a signal of tension in the market.

_Sukuk_ investors face a liquidity risk arising from the underdevelopment of the secondary market, which reflects the buy and hold attitude of investors, the lack of _sukuk_ supply and new players in the market, the nontradability of certain _sukuk_ structures, and the underdevelopment of domestic fixed-income markets. Secondary market _sukuk_ volumes could improve as more and more African countries—home to a quarter of the world’s Muslims—enter the _sukuk_ market (Thomson Reuters 2017).<sup>19</sup> Larger issuances, a wider and more diversified investor base, maturity, and global interest rate volatility determine the perception of secondary market liquidity of a bond or a _sukuk_ (Nienhaus and Karatas 2017). Other factors that could foster the development of a vibrant, deep, and liquid secondary market for green _sukuk_ include preferential regulatory treatment, a transparent and well-established price discovery mechanism, and greater _sukuk_ supply.

# **_Financial innovation_**

Financial innovation consists of offering a diversified range of instruments that align the interests of Islamic and socially responsible investors while taking into consideration sustainability pillars when structuring the _sukuk._ It also consists of efficiently mobilizing climate finance funds, including fossil fuel subsidies (see box 3) and public, concessional, and philanthropic funds to attract private sector funds.

# **Box 3: Reform of fossil fuel subsidies**

The reform of energy subsidies is an important issue to consider when discussing energy transition because of their impact on budgets, economic growth, climate change, and income distribution. Subsidies make investment in the energy sector unattractive and widen the gap between rich and poor (IMF 2013). Eliminating these subsidies releases funds for green investment by stimulating demand for renewable energy. OECD analysis suggest that most countries would realize real income gains of 4 percent by unilaterally eliminating subsidies, in addition to a 10 percent reduction in greenhouse gas emissions by 2050 compared with a normal activity. India and Indonesia are taking the lead in reducing their subsidy bills below $500 billion by 2014 (IEA 2015). It is important to take into consideration the social impacts of their elimination, especially for the poor. Indonesia’s subsidy reform resulted in the reallocation of fossil fuel subsidies to education, health, and energy <u>projects.</u>

> 19 Côte d’Ivoire, The Gambia, Nigeria, d Senegal, South Africa, Sudan, and Togo have issued _sukuk_ ; Niger and Kenya are planning to do so.

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