An Investigation into the Approaches to Financing Urban Renovation via Modern Financial Instruments

The main difficulty the projects and urban renovation plans have is having no access to the financial and non-financial sources they require and due to the large scale of the issue and the financial limitations of the government section and municipalities, would not make the effective entering of such sections into the improvement and the renovation of the worn-out textures of the city possible. According to the quantitative goals of the fifth developmental plan (article 171), to attain the annual index of %10 in optimizing and renovating urban structures, an annual financial source of 400,000 billion Rials is required, the financing of which through the common methods is next to impossible. Hence, new approach should be thought of. The recently-heard “Sukuk (Islamic bonds) for investment purposes”, project shareholder, and investment deeds with asymmetric and accidental revenue are among modern financial instruments through which the financing of plans for urban renovation could be possible. However, achieving such an important goal requires sufficient knowledge of Islamic contracts and of modern instruments which are utilized in the financial markets both across the globe and nationwide. Such knowledge may open up practical methods for the managers and municipalities to finance urban renovation and reconstructing the worn-out structures. For example rent contract and the bonds for renting purposes may help release a large amount of locked-up capital and direct it to be used for urban renovation. Using such a method, it is possible for the municipalities to sell their administrative buildings to the companies which are active in specific fields and then rent them from the very companies. The obtained profit out of the selling of the buildings could be used to invest in the economically-justifiable urban renovation plans. This paper, first, investigates into the required financial sources for urban renovation projects and the ways for financing them and, then, via introducing some instruments and modern financing methods, paves the way for developing the use of such instruments for urban renovation purposes in near future.