As the premier Islamic financier of development projects the world over, the IDB continued to register a busy year in 2011; even as the year comes to a close and credit conditions tighten due to the ongoing crisis in Europe.
By the end of November, the bank had recorded an unprecedented level of financing for the year: amounting to US$4.2 billion. The bank’s machinery has also yet to shut down for the year, with the bank continuing to sign agreements in December to provide funding for various projects in its 56 member countries.
Of note this year is that the Islamic Development Bank (IDB) has expanded its presence in non-member countries, while also partnering with non-Shariah compliant banks such as the Asian Development Bank (ADB). With the bank also looking to increase its footprint in its member countries, the IDB appears set to continue to play an integral role in the development of the global Islamic finance industry.
Record levels of financing
As at the 27th November this year, the IDB’s approved funding for projects exceeded US$4.2 billion, its highest level recorded within one year; and excluding financing by other IDB Group entities. The figure saw the bank surpass its financing target of US$4.1 billion for 2011 and exceed last year’s approvals of US$3.72 billion.
On top of this, the bank approved a further US$236.98 million-worth of financing for another 15 projects. This includes US$105 million for a power project in Mauritania, US$11 million in support of Morocco’s national rural roads program and US$5.3 million to contribute to the capital increase of Saudi Arabia’s Allied Cooperative Insurance Group.
Its financing this year will also include a US$250 million allocation in support of Arab countries undergoing political transition, such as Tunisia, where the IDB has approved a US$50 million Mudarabah financing facility and a US$320,000 grant for a youth employment support program.
The IDB has also played a role in furthering the development of the industry in the fledgling markets for Islamic finance, such as by taking up US$6.5 million-worth of equity in Nigeria’s first fully-fledged Islamic bank, Jaiz International (currently under formation); providing a US$290,000 technical agreement to the government of Gambia (which is planning to issue its first sovereign Sukuk); and assigning a US$75 million line of financing to Turkiye Finans Participation Bank to provide long-term financing opportunities to small and medium-sized enterprises, as part of the IDB Group’s Member Country Partnership Strategy (MCPS) program for Turkey.
In November the IDB also signed a technical assistance agreement with Tajikistan’s central bank to develop the legal, regulatory and supervisory framework for Islamic banking in the central Asian country.
An inclusive approach
In addition to its support for the growth of Islamic finance and economic development in its member countries, the IDB has also sought to reach the Muslim communities of non-member countries. Under the IDB Waqf Fund it has channeled funds to the likes of Latvia, Ecuador, Mauritius and India; and interestingly, US$350,000 to a school in Tennessee, US.
Furthermore, while the bank already has a relationship to co-finance projects with the ADB (which does not have a Shariah compliant division), at the end of November this year it signed a US$6 billion framework financing agreement (FCA) to step up co-financing operations.
“The FCA aims to promote IDB-ADB cooperation in their common member countries in such areas as agriculture, food security, rural development, human development, education and health, private sector development and insurance.
A growing footprint
In the year ahead, the IDB’s resources are expected to continue to focus on human, agricultural and rural development and infrastructure.
“In line with IDB’s vision for the year 2020 to become a world class organization and with the objective of improving IDB’s presence in its member countries, the board also approved the launching of five IDB pilot gateway offices in Egypt, Turkey, Indonesia, Bangladesh and Nigeria to follow up implementation of IDB projects and activities therein. If the evaluation that will be made on these offices in three years is positive, similar offices could be opened in the future in other member countries,” it said.
Headquartered in Jeddah, Saudi Arabia, the bank currently also has four regional offices in Kazakhstan, Malaysia, Morocco and Senegal.
However, one concern that has been raised regarding the IDB’s activities is the under-utilization of funding, with Karnaen Perwataatmadja, the former executive director to Indonesia at the IDB, noting that the absorption of IDB funding by the Indonesian private sector is lower than in other member countries.
Meanwhile Adriyanto, the deputy director of the fiscal policy board’s Investment Trend Changes and Multilateral Center in Indonesia, said that between 2005 and March this year IDB funds disbursed via the Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the IDB, only amounted to US$26.8 million – comprising around 1% of the bank’s commitment to the country. He believes that the low absorption of IDB funding in Indonesia is due to the slow approval process.
Nonetheless, the IDB appears to remain committed to its member countries, while also providing support to communities in non-member countries and strengthening its partnerships with non-Shariah compliant institutions. With its inclusive approach towards developing economic growth, the bank appears on course to continue its key role in the integration and expansion of Islamic finance. — EB