LONDON, 30 June 2003 — This week the Islamic Development Bank (IDB) embarks on selling its debut $300 million global Islamic bond. The bond is being lead managed by Citigroup and will be the first in a series planned by the IDB in a $2 billion resource mobilization exercise over the next few years. This debut issue is to test market appetite and set benchmark pricing for IDB bond issues.
IDB recently received a fillip from the Basel Accord which gave the IDB a zero percent risk weighting.
More importantly the bank set up a task force to come up with a single future strategy for the IDB Group. “Internally, we have several forums, where we periodically re-evaluate our existing structures and activities, and develop new ones as and when the need arises. For any financial institution you have to have certain procedures. I can’t say that we are not happy with what we have, but we have to improve our internal procedures. We welcome this constructive criticism, because it will drive us toward reviewing and improving our procedures from time to time,” explained IDB president Dr. Ahmad Mohamed Ali.
The IDB has three core strategic objectives — poverty alleviation in member countries, enhancing cooperation among member countries, and the promotion of global Islamic banking and finance. At its 27th annual meeting held in Burkina Faso in October 2002, the IDB issued the Ouagadougou Declaration, which reiterated the bank’s commitment to cooperate with member countries in Africa and committed $2 billion for the next five years to support development in the IDB’s 20 Sub-Saharan African member countries. This will be carried out in cooperation with NEPAD (the New Partnership for African Development). “We are committed to supporting NEPAD and developing a special relationship with the initiative.
As you know, there is a wide diversity in the level of development between many of our member countries and there is a need for the transfer of technology between member countries through the exchange of experts, holding technical workshops and conferences, and providing training which the IDB can and does sponsor,” Dr. Ali pointed out.
While the IDB targets raising trade between member countries to about 13 percent of their total trade over the next few years, there is no doubt that it has the resources to implement its core objectives. Resource mobilization, stresses the IDB, at competitive pricing is a major priority. The IDB board approved a substantial increase in the bank’s authorized and subscribed capital to 15 billion Islamic dinars and 8.1 billion Islamic dinars respectively. The plan is to raise nearly $3 billion from the market over the next ten years.
“Our member countries have made most generous contributions to IDB capital,” explained Dr. Ali. “In proportionate terms, the ratio of paid-up capital to subscribed capital is among the highest in the case of the IDB compared to other MDBs. We are not in need of further cash from our member countries.” Saudi Arabia is the largest equity subscriber to the IDB with 997.17 million Islamic dinars (One Islamic dinar = One Special Drawing Rights of the International Monetary Fund).
This means it owns 24.56 percent of the equity of the IDB and has by far the largest number of votes at 65,861. This is way ahead of the next big equity subscriber — Kuwait with 496.64 million Islamic dinar or 12.23 percent.
The IDB will play its role in the reconstruction of Iraq in cooperation with other institutions, and will continue to finance humanitarian aid in Palestine and contribute toward funding the Palestinian Authority.
As part of its core objective in promoting Islamic finance globally, the IDB is in the process of preliminary discussions with interested parties looking at the possibility of setting up an Islamic bank in the UK. The IDB has received “an indication” from the UK’s Financial Services Authority (FSA) that it is ready to consider an application for an Islamic bank.
The IDB has set up a committee to do a feasibility study on the viability and demand for such a bank in Britain.
