In the words of Dr Ali Mohamed Ali Al Madani, the Islamic Development Bank, or the IDB as it is more popularly known, is on track to achieving its goals, but cannot say that it is has achieved it. “Our goals and ambitions are very high. I cannot say that we have achieved our goal, but we are on track to achieving this,” he said.
Ali, who has been the president of the IDB since 1975, is an unassuming man. His charm and humility belies his position as the leader of one of the world’s leading financial institutions, and perhaps the most important entity in the universe of Islamic finance — making him one of the most influential and powerful figureheads in modern Islamic banking.
A man’s success as a leader is evident in the respect he commands, in the most gracious of manners, and the clout that he has in his industry. And being in the same room as Ali, it is obvious that everyone, including international bankers and officials from the IDB and the ICD, are hanging on to his every word.
Our goals
The IDB was officially set up in October 1975 after the issuance of a Declaration of Intent by the Conference of Finance Ministers of Muslim Countries in Jeddah in December 1973. The institution was set up with the aim of fostering economic development and social progress of its member countries and Muslim communities in accordance with the principles of Shariah.
The bank, which has become synonymous with creating real economic activity has been mandated with participating in equity capital and grant loans for productive projects and enterprises, outside of providing financial assistance to its member countries, as well as establishing and operating special funds to assist Muslim communities in non-member countries, setting up trust funds and accepting deposits and mobilizing financial resources in a Shariah compliant manner.
Speaking to Islamic Finance news, Ali said: “We currently have 56 member countries, including the least developed countries in the world. Out of the 32 to 34 least developed countries in the world, 22 of them are our member countries. Our goal, among others, is to raise these countries to the best level we can, improve livelihoods and standard of living and continue to develop their human resource capabilities. These are very huge challenges, but we are trying to do our very best.”
In terms of the bank’s strategy for development in its member countries, Ali alludes to a council that was appointed a few years back, which consisted of “very qualified, eminent personalities” including Dr Mahathir Mohammed, the ex-prime minister of Malaysia, who provided assistance to the bank in developing its 2020 vision. “That team of personalities was chaired by our brother Mahathir. The team did very well and provided us with a very good visionary strategy for our 2020 vision. Of course our main goal is to develop our institution itself, into a first class financial institution,” Ali elucidated. He added that the bank has taken major steps over the last two years, and constantly stresses on human resource development in its member countries.
“We are also looking to introduce a new way of doing business in these countries, and one of it is through the Member Countries Strategic Partnership, or MCSP. We are currently working to finalize this with about 25 member countries, including Malaysia, and under this MCSP program, member countries not only receive help from the IDB, but also propose what they can provide to the development of other member countries,” he explained.
Ali added that Malaysia is currently providing crucial technical assistance in capacity building to the IDB’s member countries, and this has been incorporated as part of their new strategy for member countries. He said: “We are very grateful to Malaysia for their readiness to give assistance to other member countries, and many member countries are benefitting from this help. Although all our member countries are developing countries, there is still a big margin in terms of their economic development.”
Weathering the storm
According to Ali, the bank saw its biggest growth and best times during the wake of the 2008 financial crisis, not something many would be able to claim. Although the bank was affected, and still continues to be exposed to the perils of the global economic state, Ali believes that the nature of the Islamic finance industry has equipped it with slightly more resilience compared to the conventional industry.
“When the global crisis hit in 2008, our annual growth was 15%, and this was detailed in a proposal we submitted to our board of directors. But they had asked to increase it to 30% as the crisis was expected to hit some of our member countries. Therefore, at the time of the crisis, the IDB actually grew more than it would have under normal circumstances. In some respect, the crisis became a blessing for the IDB,” he offered.
In the first three years of the global financial crisis, the IDB had accomplished an annual growth of 30%, and although Ali says that the growth momentum has slightly tapered to a more “normal pace”, the bank is expected to grow as it gains assistance from its member countries. “In spite of that, the IDB was able to retain its ‘AAA’ rating, the highest rating afforded to financial institutions, before, during and after the crisis, and that is our position as far as the international financial situation is concerned,” Ali said, adding that the bank is thankful for its success in weathering the financial storm.
Of megabanks and treasury operations
Talks on the creation of an Islamic megabank with the involvement of the IDB, which is expected to be capitalized at US$1 billion or more, have been circulating in the market since 2011, and when asked on this project, Ali calmly said: “It has not been as simple as we expected, but we are still working on it with our partners, and it is definitely in the pipeline.”
He believes that there is “a very important need” for a megabank in the Islamic banking and finance industry, as one of the major challenges currently hampering its growth is the lack of proper liquidity management. “The industry currently lacks a number of ways to manage liquidity, and a megabank will help Islamic banking institutions to manage their liquidity in a more professional and better way. I expect the megabank and the International Islamic Liquidity Management Corporation (IILM) to complement each other, and cooperate as their functions will be different. The megabank for instance will have its own capabilities and financial resources. But in the case of the IILM, it depends on their members and shareholders.”
The IDB’s presence across its member countries is ubiquitous, in terms of its aid and treasury operations. It is also currently cooperating with Muslim communities in non-member countries such as India, Laos, China, Philippines and Europe. However, Ali cites Malaysia as one of the more standout countries where it is looking to enhance its cooperation via Khazanah Nasional, the government of Malaysia’s strategic investment fund. “We have a very good relationship with Khazanah, and looking to enhance our cooperation with them. Malaysia is developing as an important financial center in the region, and we have a special team in Malaysia to see how we can enhance our treasury operations. As a result of our cooperation with Malaysia, our Sukuk which was issued last year was marketed mostly in the Far East, and made up 25% of our investor geography,” he said.
The ICD, the private sector arm of the IDB, is also said to be actively working with officials from Malaysia on enhancing its treasury cooperation, and is boosting its presence in the IDB’s Kuala Lumpur office. “The ICD are working with Bank Negara Malaysia and a few other institutions such as Tabung Haji and the Awqaf foundation on a few big initiatives, with its treasury operations still under discussion,” Ali offered.
Balancing risk and reward
Perhaps the most important question when working with developing countries and least developed countries is the issue of risk and reward. This has been said to be one of the most pressing challenges for the IDB, but Ali, as calm and confident as ever, simply said: “Our ‘AAA’ rating speaks for itself. It is our duty to help and manage this type of risk which comes with assisting high risk countries. The fact that the IDB has been rated at ‘AAA’ by the three of the world’s leading rating agencies for the last decade, it is a clear indication that we have been successful at managing this risk. Our overdues have been very minimal, and all our member countries are eager to fulfill their obligations to the IDB.” — NH