Last year the 34th IDB annual meeting was held in Ashkabad in Turkmenistan, underlying the growing the importance of the region to the Islamic finance industry and at the same time the regions opening to the sector and to the wider OIC community of countries. Already another CIS country, Tajikistan has extended an invitation to the board of governors to hold the 39th IDB annual meeting in Dushanbe in 2014.

The IDB meeting could not come at a more important time for its member countries as they try to meet their development challenges as the world emerges from the recovery in a post financial crisis era. For the MDB itself it is also a defining moment as it tries to implement a number of reforms and new strategies in its aspiration of making the bank a world class institution. At the same time it has to live up to one of its core original objectives of promoting Islamic finance globally — a task in which there is room for considerable improvement and proactiveness.

The IDB is faced with three strategic challenges. Last year the IDB and the Islamic Financial Services Board (IFSB) established two task forces — a task force on “Islamic Finance and Global Financial Stability” with the brief to recommend ways of further strengthening the Islamic financial infrastructure to boost its resilience and ability to meet future challenges; and a liquidity management task force whose mandate is to enhance the efficiency of Islamic financial institutions in managing liquidity at both national and across borders.

The ‘Islamic Finance: Global Financial Stability Report’ was unveiled in Khartoum, Sudan in April, and key suggestions included eight building blocks in three key areas to promote financial stability in the global Islamic financial industry; the establishment of an Islamic Financial Stability Forum (IFSF) which would essentially “be a broad-based and constructive strategic platform for IFSB members to achieve the primary objective of building cross-border dialogue in efforts to promote financial stability within the Islamic financial system”; and the promotion of “collaboration and cooperation in remedial policies to prevent, contain and manage emerging issues in Islamic finance.”

The Baku meeting no doubt will discuss the progress in the above respect. However there needs to be a much greater urgency in the deliberations of these task forces. Even the Financial Stability Report is largely aspirational and would take serious political will on the part of member countries to adopt on a national policy basis.

The urgency of a liquidity management mechanism cannot be overstated. Markets all over including the established ones of Malaysia, Bahrain and the UAE are screaming for a well-established short term hard currency international liquidity management scheme to meet their various overnight, daily, monthly and even yearly requirements. There is a huge lack of this type of facility, especially one not managed by a commercial entity.

This liquidity management strategy has been tempered with disinformation about the IDB’s own capital markets program, for instance its declared $6 billion sukuk or MTN program. Despite inaccurate reports in the international media that the MDB will not be issuing any more sukuk this year, because it can raise funds alternatively for instance by calling in capital commitments from its equity subscribers which total over $16.5 billion, the IDB, according to senior sources, is poised to go to the market again in September to issue an international sukuk, probably a bigger issuance than its $800 million sukuk in 2009. The IDB also has liquid assets of $3.3 billion. Additional capital resources may also be available through the Special Account Resources Fund (the Waqf Fund).

To further show it development initiative at a local country level, the IDB also has a strategy to issue a series of local currency sukuk, primarily private placements, to impact on the real economy of these countries and to spread the word of cooperation. The IDB has already issued such sukuk in Malaysia and Singapore. It may also issue similar sukuk in Hong Kong, the UK, Luxembourg and a few other countries.

The third challenge is that of inter-group connectivity. The IDB is now a group like the World Bank with several standalone independently capitalized and run entities such the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), Islamic Trade Finance Corporation (ITFC) and Islamic Corporation for the Development of the Private Sector (ICD).

The IDB Group indeed has been undergoing a serious reform process — organizationally, strategically and process wise. Part of the objective of this reform process is to develop the IDB into a world-class institution. And one of the elements of this process is to develop synergies between the various parts of the group.

The man spearheading a task force overseeing this reform process is Abdel Rahman Taha, CEO of ICIEC which, a few days ago, launched in Dubai its first office outside its headquarters in Jeddah. “To be frank this cooperation has not been there. Now there is a very strong drive toward synergies. President Ahmad Mohamed Ali himself is leading this effort. The mandate of this task force is to promote synergies between the group entities. We are now implementing the proposals in this respect especially in using common services, performance and control monitoring for example group risk management and internal audit, and also in promoting business synergies such as the client facing departments working together in ICIEC, ICD and ITFC.”

The IDB Group has also embarked on another important collaborative initiative called the member country partnership strategy (MCPS) where the IDB engages with a member country and discusses at the very highest level what the IDB strategy would be to help that country. Previously, this engagement was done on a piecemeal on a project by project basis where a member country requested financing for a road here or a school there, bereft of a holistic aid strategy.

According to Taha, this new MCPS has already been started with Turkey, with Indonesia next and a host of other countries in the pipeline. The IDB Group is collectively involved in formulating studies, feasibilities, problems and potential etc. and then going to negotiate with the respective government of the receiving country and then formulating the strategy. In addition the IDB has also established a department for PPP (Public Private Partnership).