The Jurisprudential and Economic Foundations of Build-Operate-Transfer (BOT) Contracts and Their Role in Managing Liquidity in Islamic Banks

Abstract

This paper examines the jurisprudential and economic foundations of Build–Operate–Transfer (BOT) contracts and evaluates their role as a Sharīʿah-compliant mechanism for managing excess liquidity in Islamic banks. Using a descriptive and analytical methodology, the study traces the historical emergence of BOT-type arrangements, clarifies their legal nature within contemporary concession and public–private partnership (PPP) frameworks, and outlines the main contractual parties, phases, and variants (such as BOOT, DBFO, and related models). On the Sharīʿah side, the paper analyses classical and modern fiqh discussions and positions of leading Sharīʿah bodies, showing that BOT structures can be accommodated as composite contracts built primarily on istiṣnāʿ and ijārah, supported by the general principle that the default rule in transactions is permissibility. Attention is given to the maqāṣid al-Sharīʿah (objectives of Islamic law) served by BOT, including the provision of public utilities, preservation and development of assets, risk sharing, and promotion of real-sector investment. Economically, the study argues that conventional, debt-based financing contributes only limitedly to added value and national production, whereas BOT contracts are intrinsically tied to the creation, operation, and eventual transfer of productive infrastructure. When deployed by Islamic banks, BOT arrangements enable the mobilisation of surplus liquidity into large-scale projects through instruments such as sukuk issuances, syndicated financing, and dedicated investment funds, while transferring construction and operational risks to specialised private entities and preserving final public ownership of strategic assets. The paper concludes that, under appropriate Sharīʿah structuring and regulatory support, BOT contracts can serve as an effective tool for liquidity management in Islamic banks, simultaneously advancing sustainable development, providing fiscal relief to governments, and enhancing the social utility of Islamic finance.