Concept and Ideology
Islamic Development Bank

Establishment
The idea of establishing an international financial institution for Muslim countries was discussed in the late 1960s by the Organization of Islamic Conference (OIC). Working papers were circulated and proposals made, but no concerted action was taken until the first meeting of the Finance Ministers of the Islamic countries held in Jeddah in Dhul Qada 1393H (December, 1973).

The second conference of finance ministers held in August 1974 adopted the Articles of Agreements establishing the Bank. The Bank began functioning on 15 Shawal 1395H (20th October 1975).

Objectives

The establishment of the Islamic Development Bank was aimed at contributing to economic development and social progress of its member countries by reinforcing economic co-operation among them, assisting in the development of Islamic economics, banking and finance, and promoting the economic and social welfare of Muslim communities in non-member countries. In order to realize the above objectives, the IDB is empowered by its Articles of Agreement to engage in the following activities.

  1. Participation in equity capital of productive projects and enterprises in member countries;

  2. Investment in economic and social infrastructure projects in member countries by way of participation or other financial arrangement;

  3. Extending loans to the private and public sector for the financing of productive projects, enterprises and programs in member countries;

  4. Establish and operate special funds for specific purposes, including a Fund for assistance to Muslim communities in non-member countries;

  5. Operate trust funds;

  6. Accept deposits and raise funds in any other manner;

  7. Assist in the promotion of foreign trade, especially in capital goods, among member countries;

  8. Suitably invest funds not needed in its operations;

  9. Provide technical assistance to member countries;

  10. Extend training facilities for personnel engaged in development activities in member countries;

  11. Undertake research to enable the economic, financial and banking activities in Muslim countries to conform to the Shariah;

  12. Co-operate in such a manner as the Bank may deem appropriate with all bodies, institutions, and organizations having similar purposes, in pursuance of international economic co-operation;

  13. Undertake any other activities, which may advance its purposes; and

  14. According to the Articles of Agreement, all these activities are to be undertaken in accordance with the principles of the Shariah.

Membership

There are two conditions for membership: the prospective member country shall be a member of the OIC, and the member should pay its contribution to the capital of the Bank and be willing to accept such terms and conditions as the Board of Governors may decide. The membership increased from 22 at the time of inauguration in 1395H to 52 at the end of 1418H (April 1998).

 

Head Office and Regional Offices

The Bank's principal office is in Jeddah. Two regional offices ware opened in 1994; one in Rabat, Morocco and the other in Kuala Lumpur, Malaysia. In July 1996 the Board of Executive Directors also approved the establishment of an IDB Representative office at Almaty, Kazakhstan to serve as a link between IDB member countries and Central Asian Republics. The office became operational in July 1997.


Financial year

The Bank's financial year is the lunar Hijra year.


Language

The official language of the Bank is Arabic, but English and French are additionally used as working languages, and publications are made available in these languages also.


Organization and Management

The administrative branch of the bank consists of the Board of Governors, the Board of Executive Directors, and the President.


Board of Governors: A Governor and an Alternate Governor represent each member country on the Board of Governors. It meets once a year to review the activities of the Bank for the previous year and to decide future policies.


Board of Executive Directors: The Board of Executive Directors (BOD) is composed of eleven members, of whom five are appointed, one from each of the five member countries having the largest number of shares (Saudi Arabia, Kuwait, Libya, Turkey and UAE), and the remaining six elected by the Governors of all other member countries. Executive Directors hold office for a term of three years and may be re-elected. The BOD is responsible for the direction of the general operations of the Bank.


President: The Board of Governors elects The President for a renewable term of five years. He is the Chief Executive of the Bank and the Chairman of the Board of Executive Directors. He conducts the business of the Bank under the direction of the Board of Executive Directors.


Vice Presidents: Three Vice Presidents assist The President. A Vice President holds office for a renewable term of three years. He exercises such authority, and performs such functions in the administration of the Bank, as may be determined by the Board of Executive Directors.

 

Sources of Funds

  1. Ordinary Capital: The authorized capital of the Bank remained at 2 billion Islamic Dinar (ID) until 1412H (1992). The subscribed capital has increased from its initial amount of ID 750 million in 1395H (1975) to ID 1,960.87 million on August 1, 1989. During the same period, the paid-up capital of the Bank increased from ID 267.18 million to ID 1,644.68 million. The ID is the unit of account of the Islamic Development Bank and is equal to one Special Drawing Right (SDR) of the International Monetary Fund.

Although the Islamic Development Bank is empowered to accept deposits, the major source of finance for its operations has been the capital subscription of its members. The Board of Governors of the IDB in its special meeting held in Muharram 1413H (July 1992) decided to increase the authorized capital of the Bank to ID 6 billion divided into 600,000 shares having par value of ID 10,000 each. The subscribed capital of the Bank also increased to ID 4 billion payable according to specific schedules and in freely convertible currency acceptable to the Bank. At the end of 1418H (April 1998) the paid-up capital amounted to about ID 2.257 billion (US $ 3.045 billion).


Most funds used to support the activities of the Islamic Development Bank, after the initial capital injections, have come from the repayment of existing lines of credit advanced in the form of temporary assistance. That is the capital is revolving. This is particularly true in the case with trade financing by the IDB, which is self-liquidating in the short to medium term, and accounts for most bank funds. In the case of project financing the bank assets become mostly illiquid whether this is done through equity participation, leasing or installment sale.


In recent years much thought has been given to the question of how to increase bank resources in order to mount financing operations on a wider scale. The exigencies came from the realization that equity investment and leasing has lower repayment ratio and hence is less revolving. Two schemes were drawn up to augment funds for the IDB: (a) the Islamic Bank's Portfolio for Investment and Development (IBP), and (b) the IDB Unit Investment Fund.

  1. Unit Investment Fund: Another dimension of resource mobilization by the IDB is the Unit Investment Fund. It is one of the private sector windows of the IDB aimed at raising additional resources for the Bank primarily through disinvestments of its completed projects. The main purpose of this resource mobilization is to complement the Bank's efforts to strengthen its operations in the member countries. Establish in 1409H it began functioning in 1410H (January 1, 1990). The Unit Investment Fund is a US dollar denominated investment fund managed by the IDB in accordance with the Islamic concept of Mudaraba, with the IDB as the Mudarib. The fund is supposed to invest in viable ventures in IDB member countries, primarily in the major capital markets of the world. The size of the initial issue of the fund was US$ 100 million and subsequently increased to US$ 325 million. The par value of each Unit is US$ 1.00.  A periodical assessment of the net assets of the Fund is required. The IDB undertakes to buy back units from investors after the first year of operation of the Fund at regular intervals within each year. Of course, the investors are free to buy and sell units among themselves whenever they like. The minimum subscription is fixed at US$ 100,000 for an institutional investor, keeping the room for acquiring any multiple amounts.  The unit holders of the Fund are mainly Islamic financial institutions.

INVESTMENT MECHANISMS OR MODES OF FINANCE

  1. Utilization of Funds: Normally, international financial institutions invest their surplus funds in government securities; government guaranteed securities, time deposits and certificates. However, the IDB after a survey and review of alternative possibilities of investment, and taking into consideration the requirements of security, liquidity, returns based on performance, and compatibility with the Shariah has decided to develop new modes of financing. The modes currently used by the Bank are diversified and flexible and are claimed to be capable of meeting different circumstances and development needs of member countries. This diversification distinguishes the IDB from other international financial and development institutions.

The Bank has been utilizing its fund, under different modes, for project financing and technical assistance to member countries.  Along with foreign trade financing operations, a policy adopted in 1397H (1977) and it resorted to placing funds of other Islamic banks from 1403H (1983). This new step helped immensely in strengthening Islamic banks, and in promoting co-operation between them and the IDB. The IDB has also been placing funds with certain international banks for use in commodity trade keeping consistency with the requirements of the Shariah.


At the initial stage, the modes employed by the Bank for project financing were loan and equity, but leasing was introduced in 1397H (1977). This mode became very important because of its flexibility. In order to eliminate some problems encountered in leasing, especially those resulting from continued ownership of the relevant assets by the IDB, the Bank introduced installment sale in 1405H (1985). It is similar to leasing but entails the immediate transfer of ownership of the relevant assets to the buyer. The buyer can pledge these assets as collateral to secure relevant payment guarantees from private banks. Profit sharing was introduced in 1398H (1978). However, it could not gain much importance as a mode of financing.  In 1397H (1977), the Bank began extending lines of finance to National Development Financing Institutions (NDFIs) with a view to expand its equity financing activities to small and medium scale enterprises. Istisna'a, a new mode of financing, was adopted by the Bank in 1416H (1996). Moreover, technical assistance was provided to member countries and to the Muslim communities in non-member countries from the Special Assistance Account (currently known as the Waqf Fund).


In terms of mode, up to the end of 1418H (1998) a total of ID 3782 million (US$ 4899 million) was approved for project financing and technical assistance. This included ID 1325.70 million (35.1%) as loans, ID 1060.46 million (28.0%) for lease financing, ID 837.60 million (22.2%) for installment sale, ID 206.51 million (5.5%) for equity participation, ID 184.72 million (4.9 %) for lines of finance to NDFIs ID 62.45 million (1.6%) for profit sharing, ID 18.90 million (0.5%) for Istisna'a, and ID 85.00 million (2.1%) for technical assistance. The total financing operations approved by the IDB from 1395H-1418H (1975-1998) can be seen in Table 1.

  1. Loan Financing: Loan financing, a concessionaire mode of financing, is intended to provide long term finance for infrastructure projects such as roads, harbors, airports, irrigation schemes, land development, schools, rural water supply, hospitals etc. In accordance with the Bank's priority policies, it is extended mainly to the Least Developed Member Countries (LDMCs). Among the IDB member countries they are, according to the UN classification: Afghanistan, Bangladesh, Benin, Burkina Faso, Chad, Comoros, Djibouti, The Gambia, Guinea, Guinea-Bissau, Maldives, Mali, Mauritania, Mozambique, Niger, Senegal, Sierra Leone, Somalia, Sudan, Uganda and Yemen.

Table-1: Financing Operations Approved by the IDB

(Cumulative of 1396H-1418H (1997-98)1

 

Types of Operations

No.  of Operations

ID (Million)

US$ (Million)

1.      Ordinary Operations2

870

3781

4899

a) Project Financing

b) Technical Assistance

2. Trade Financing

621

249

1150

3696

85

9854

4793

106

12626

a) ITFO

b) EFS

c) IBP

3. Waqf Fund Operation

    (Ex-Special Assistance Operations)

899

126

125

432

8335

306

1213

381

10483

429

1714

457

Total:

2452

14017

17981


1.      Exclusive of cancelled operations

2.      Financed from the Ordinary Capital resources and the Special Account for the DMCs.

 

Note: Totals may not add due to rounding.

Source: Annual Report 1418H (1997-98), Islamic Development Bank


A modest service charge, not exceeding 2.5% per annum, is asked by the Bank to cover its actual administrative expenses. Repayments period for the loan is usually 15-25 years including a grace period of 3-7 years. By the end of 1418H the IDB has so far provided loans to 304 projects amounting to a total of ID 1326 million (US$ 1678 million) excluding cancelled operations. About 59% of this loan or ID 782 million (US$ 1,000 million) went to the LDMCs.


(c) Leasing: Lease financing falls under the category of medium term financing. The mode is used to provide financing for development projects with are sufficiently remunerative to meet the market criteria. Leasing involves the purchase and subsequent transfer of the right of usage of equipment to the beneficiary for a specific period of time, during which the IDB retains ownership of the asset. Funds are normally made available to the recipient countries for between 7 and 12 years including a 2 to 3 years gestation period.


A mark-up is charged and added to the procurement price of the equipment to be leased out. Mark-ups are reviewed periodically and rebates of up to 15% are given for repayments made on time. Generally, a lower mark-up is charged for infrastructure projects. The IDB revised the mark-up downwards for leasing and installment operations during 1412H (1992) from existing range of 8-9% to 7.5-8.5%. Since the commencement of this mode the Bank approved a total of ID 1060 million (US$ 1409 million) for 97 operations up to the end of 1418H. This number excludes lines of leasing extended to NDFIs and cancelled operations


(d) Installment Sale: Installment sale is one of the most significant modes of IDB financing .The IDB, by applying this mode, purchases equipment and machinery and resells it to the beneficiary at a higher price. Repayments are normally made over a period of 6 to 12 years, including a gestation period of 6 to 36 months. The main operational difference between this mode and lease financing is that the ownership of the asset is transferred to the beneficiary on delivery in the case of installment sale. Installment sale is still the main source of income for the Bank. The total financing under this mode since its introduction in 1405H until the end of 1418H had been ID 838 million (US$ 1110) million) for 97 operations excluding lines of installment sale extended to NDFIs and cancelled projects


(e) Equity Participation: The IDB participates in the share capital of new or existing enterprises through equity participation. Total direct equity financing approved by the Bank up to the end of 1418H (1998) amounted to ID 207 million (US$ 257 million). So far the IDB had direct equity in 83 companies and Islamic financial institutions in member countries. The Bank's approach towards equity financing has remained cautious. In a recent review of its equity portfolio, the Bank has carried out a comprehensive assessment of its investment based on equity. It was found from the analysis that 19 companies (recipient of 31% of the total equity portfolio amounting ID 48.52 million) succeeded in distributing dividends. A further 18 companies representing 30% of the total equity portfolio made net profits but were not able to distribute dividends. The remaining 24 companies representing 33% of the total equity portfolio were losing concerns.


(f) Profit Sharing: In profit sharing operations business partners pool their resources in a joint venture from which each party is entitled to a share of profit distributed in direct proportion to the amount contributed. So far the Bank has financed 7 operations valued at ID 62.45 million (US$ 86.75 million).


(g) Istisna'a: The Istisna`a mode of financing was introduced in Shawal 1416H (March 1996). Its main objective is to promote trade in capital goods among the member countries and the enhancement of their production capacities. Istisna'a could also be used to finance infrastructure projects in the private sector or the sale of intangible assets such as power. It provides a medium term financing mode through which the buyer makes specifications on the items or services desired while the seller (manufacturer or service provider) adheres to those specifications, and guarantees to maintain the price unchanged over an agreed period of time. So far 2 operations worth ID 18.90 million (US$ 26.95 million) have been approved.


(h) Lines of Finance Extended to NDFIs: The IDB`s a very important window for providing funds to the private sector is the extension of lines of finance to NDFIs. The primary objective of this mechanism for financing projects is to assist development in small and medium scale enterprises. The mechanism helps ensure best the utilization of the expertise of locally based NDFIs in identifying opportunities and assessing risks and uncertainties involved which saves   both staff time and financial resources of the IDB. Lines are utilized through equity participation, leasing and installment sale operation. Since 1403H when lines of finance to NDFIs were introduced and up-to the end of 1418H a total of 30 project financing had been extended to 20 member countries for a total of ID 185 million (US$ 230 million).


(i) Technical Assistance: The IDB offers technical assistance (TA) to member countries. It is funded both from ordinary resources of the Bank and the Waqf fund and is provided in the form of loans and/ or grants for the identification, preparation and implementation of projects. The Bank's technical assistance program is supplemented by the Islamic Research and Training Institute (IRTI), a branch of the IDB, in the form of conferences, seminars, workshops and short-term exchange of experts. In addition, the Bank finances consultant services to assist its own staff in project preparation and follow-up. Technical assistance is provided to prepare feasibility studies, detailed designs, or plan institution buildings. Pilot projects are also financed through technical assistance. In providing technical assistance priority is given to the projects in LDMCs as well as regional projects. Technical assistance was widely used for agricultural development, food security joint venture promotion, enhancement of regional cooperation, and infrastructure development. About 69% of the technical assistances were in the form of grants, the rest being provided as loans. Up to the end of 1418H the Bank has approved a total of 249 operations worth ID 85 million (US$ 106 million) The LDMCs has accounted for about 63% of all approved technical assistances.

 

Sectoral distribution

Since the adoption of the "Strategic Agenda for the Medium Term" in 1415H (1995), the general direction of the IDBs focus has been in the following priority sectors: agriculture and food security, small and medium scale industries, social sectors, and transport and communications. On the whole, poverty alleviation, human resources development and capacity building have been the underlying themes.


Considering the number of operations approved in 1418H the overall financing patterns  agrees with the broad  sectional priorities of the Bank's Strategic Agenda. This trend is becoming more evident now than in previous years as more Country Assistance Strategy Studies (CASS) is being carried out. This new trend of financing which reflects the impact of the CASS is evident from the number and types of projects financed in which science and technology, renewable energy, poverty alleviation, capacity building, integrated rural development and regional integration are included.

(a) Transport and Communications: Transport is civilization. Hence it is no wonder that the IDB has given topmost priority to this sector. In the wake of the growing domestic and external trade resulting from the liberalization programs there has been urgent need to improve feeder and trunk roads as well as port services.  Road projects have traditionally claimed the larger portion. Most of the assistance in the port sub-sector has gone into improving cargo handling facilities and navigational aids. At the end of 1418H this sector has accounted for a total of ID 650 million (17.2%) of the total IDB financing.


(b) Industry and Mining: The IDB's strategy in the industrial sector is to enhance the use of domestic capacity and imputes, consolidate investments previously financed by the Bank and provide financial support to small and medium scale enterprises. Most of the financing  extended to the sector is by way of leasing, and in the case of small-scale enterprises through the lines of financing extended to NDFIs. This sector claims a total of ID 760 million (20.1%) out of the total IDB financing to date.

(c) Social Sectors: The main sub-sectors under this broad heading are education and health. Country studies have showed that support of effective primary services, basic schooling and health care–has the greatest impact on economic growth and poverty alleviation. Hence the Bank emphasizes on investments in education to contribute to national efforts to build assets for the poor and build capacities for the country as a whole. Over time the focus of the Bank has extended beyond construction and/ or rehabilitation of physical facilities to include curriculum development, teacher training, book production and supply of school equipment. In the health sub-sector the Bank's main objective is to widen people's access to and the quality of primary health care. The cumulative amount of this sector since 1396H is ID 715 million  totaling 18.9%.


(d) Public Utilities: This is also one of the major growth sector among the IDB member countries and, as a result, greater investments are required to finance new projects and to modernize and expand the existing facilities. The provision of adequate, clean and safe drinking water, drainage and sewerage facilities and renewable energy development received highest priority. Its share from the Bank's inception up to the end of 1418H was ID 941 million (24.9%).


(e) Agriculture and Agro-Industries: The Bank's strategy in this sector is to facilitate improvements in productive employment and sustainable farming practices, with the overall objective being poverty alleviation. The total amount disbursed under this sector since the inception of the Bank stands at ID 639 million (16.9%).


(f) Others: Support to the financial sector, mainly to Islamic banks and to NDFIs operating under the principles of the Shariah has accounted for a total financing of ID 77 million (2%).

 

TRADE FINANCING

The trade financing operations started in 1397H (1977) mainly as a placement operation in order to provide a means of investing surplus funds of the Bank not immediately needed for project financing. Trade financing has proved an important part of the overall financing activities as well as one of the most effective ways to utilize the Bank's fund. It is clearly evident from the Annual Reports of the IDB that it has actually shifted its priority from project financing to foreign trade financing and has consistently encouraged member countries to increase the volume of trade and economic co-operation among them. At the end of 1418H, the total amounts approved by the Bank for trade financing operations stood at ID 9,854 million (US$ 12,626 million).


(a) Foreign Trade Financing Operations: Import Trade Financing Operations (ITFO), previously known as Foreign Trade Financing Operations (FTFO), started functioning in 1397H (1977). The basic objective of this scheme is to promote trade among member countries and to enhance co-operation among them. The scheme enables the Bank to utilize its surplus funds not immediately required for ordinary operations, in short-term financing, thus enabling member countries to meet their import requirements of developmental nature. In doing so, the Bank also provides temporary relief for the problems of balance of payments encountered by member countries. The principle followed by the IDB all trade financing operations is principally Murabaha. The total amount of financing approved under the ITFO up to the end of 1418H stood at ID 8,335 million (US$ 10,483 million) for 32 countries.  The commodities imported from the member countries accounted for 77 % of the total amount approved.


(b) Longer Term Trade Financing Scheme: The rules, regulations and operational guidelines of the Longer Term Trade Financing Scheme (LTTFS) were adopted by the Board of Executive Directors of the IDB on February 22,1986. Its name has subsequently been changed to the Export Financing Scheme (EFS). The main objective of the program was to expand the trade financing activities of the Bank to facilitate the export of commodities from the member countries. The EFS is designed to finance the export of non-traditional goods produced by the member countries to other OIC member countries. The scope of the market for export under this scheme has, however, been expanded to include OECD countries. It was launched in 1408H (1987-88). The repayment period under the scheme was originally 6 to 60 months depending upon the commodity. In 1418.H the duration of repayment was extended to 10 years for capital goods like ships, machinery, etc.


The EFS has its own membership, capital, budget and resources and its accounts are maintained separately. At the end of 1418H, there were 23 members participating in the scheme. The subscribed capital of the scheme amounted to ID 315.5 million (US$ 425.6 million) of which ID 133 million (US$ 179 million) is paid up. The Bank has contributed ID 150 million (US$ 202.3 million) to the scheme from the ordinary capital resources. Of this amount, ID 75 million (US$ 101.2 million) is paid up. Up to the end of 1418H, ID 306 million (US$ 429 million) was approved under the scheme.


(c) Islamic Bank's Portfolio for Investment and Development: The Islamic Bank's Portfolio for Investment and Development (IBP) is an independent fund established by the Bank in 1408H (1988) in association with other Islamic banks and financial institutions. The Bank as the Mudarib administers the IBP. It was designed to be used for export and import finance for trade amongst Islamic countries and the rest of the world, and to undertake leasing and equity operations. The unit of account of the IBP is the US dollar, and share certificates worth US$ 100 each are issued to the participating institutions. The certificates are valid for an initial period of 25 years, but extendable for another 25 years if the Bank allows. The IBP is designed to be composed of assets other than cash and debts in order to conform to the provisions of the Shariah regarding the trading and negotiability of certificates. Share certificates of the initial capital are negotiable and tradable instruments only among Islamic banks.


The authorized capital of the IBP is US$ 380 million and by the end of 1418H the initial and paid-up capital stood at US$ 100 million and the total subscription in the subsequent issues stood at US$ 201 million. To augment the resources of the IBP, the Bank allocated US$ 150 million for syndicate lease operations and US$ 100 million for syndicate trade operations. These allocations are renewable every two years. By the end of 1418H, the membership of the IBP stood at 20 Islamic banks and financial institutions including the IDB. The total financing approved by the IBP up to the end of 1418H amounted to ID 1,213 million (US$ 1,714 million) for 125 operations in 18 member countries. The merit of the IBP is that it enabled Islamic banks to participate indirectly in international trade financing with a minimum risk. The portfolio has been a useful depository of their surplus funds for yielding return. It is also an important avenue for Islamic banks to introduce corporate clients to a new type of investment financing allowing for a wide scope of product choice.

 

WAQF FUND OPERATION

The Bank has a Waqf fund (formerly known as Special Assistance Account), established in 1399H (1979), which is used to:

 

(a) train and conduct research aimed at re-orienting economies, financial and banking activities in conformity with the Shariah, (b) provide relief to member countries and Islamic communities afflicted by natural disasters and calamities, and (c) provide financial assistance to Muslim communities in non-member countries to improve their socio-economic conditions.


(a)   Special Assistance Projects in Member Countries and for Muslim Communities in 
Non-Member Countries: The Bank finances various special projects in member countries and also for Muslim communities in non-member countries. The operations in member countries are mainly for meeting exigencies of natural calamities, refugee problems and unforeseen events. The total amount approved by the Bank out of the Waqf fund up to the end of 1418H stood at ID 380 million (US$ 456 million). Out of this ID 257 million (US$ 309 million) was approved for 175 operations in member countries and ID 124 million (US$ 147) million) for 257 operations for Muslim communities in non-member countries. The amounts approved include, among others, funds for a special program of emergency aid to Sahel member countries; assistance to member countries affected by locusts, floods, and earthquakes; assistance to mitigate refugee problem and scholarship program and other educational, health and social projects for Muslim communities in non-member countries in Asia, Africa, North America, Australia and Europe.


(b) The Scholarship program for Muslim Communities in Non-member Countries: Launched in 1404H (1983-84) the program aims at helping needy Muslim students in non-member countries to pursue higher studies in universities in their own countries or in the IDB member countries. Scholarships are awarded to the students as Qard Hasan and to the concerned Muslim communities as grants. The repaid loans are deposited in the Awaqf funds established by the IDB in the beneficiary countries. Funds thus generated are to be recycled to help other students from the same area. The total amount spent under the program stood at US$ 26 million for the benefit of 4,323 students. Of these 1,725 have completed their studies.


(c) Merit Scholarship program for High Technology: The objective of the program, introduced in 1412H (1991-92), is to develop technically qualified persons in member countries and enhance the scientific, technological and research potentials of the scholars and researchers in these countries. The scholarship is tenable at certain renowned institutions and universities specializing in 16 areas of study approved under the program. The study can be for a three-year doctorate degree or for one-year post-doctoral research. The program was initially established for 5 years ending in 1417H(1996-97) with 80 scholarships. However, following the successful implementation of the first five-year phase, the program has been extended for another five years, 1423H (2000-2001). Over the last 7 years, 128 scholars from 38 countries have been selected under the program.


(d) M.S. Scholarship program in Science & Technology: This program for the LDMCs, adopted in Shaban 1418H (December 1997), envisaged that 190 scholars would benefit from it in the next five years. Scholarships will be offered for two years to study in various universities and Centers of Excellence in the IDB member countries leading to M.S. degree in Science and Technology.


(e) Technical Co-operation program: The Technical Co-operation program (TCP), established in 1403H (1983), is considered as a supplement to the Bank's activities in providing technical assistance to member countries. The primary objective of the program is to mobilize the technical capabilities of IDB members and promote the exchange of expertise, experience and skill among them. Under this program, short-term technical assistance is provided through grants to member countries to meet the cost of the services of experts, to enhance development of technical and professional skills through on-the job training and also to organize seminars, workshops and training courses on specific topics related to development. Up to the end of 1418H, an amount of US$ 14 million was approved under the program for 612 operations.


(f) Sacrificial Meat Utilization Project: At about 6.5 million sheep and over 80,000 camels and cattle. The Sacrificial Meat Utilization Project was launched in 1403H (1983). The purpose of the project is to assist the Hujjaj in performing the ritual of Qurbani related to Hajj and also to ensure proper storage and utilization of the meat of the animals sacrificed. The meat is sent by cargo ships and planes to various destinations in member and non-member countries in Asia and Africa for distribution among the malnourished people. The total number of animals slaughtered under the project since its inception stood

 

RESEARCH AND TRAINING

The Islamic Research and Training Institute (IRTI), a branch of the IDB, became operational in 1403H(1983). The objectives of the IRTI are to: (a) undertake basic and applied research in order to enable the economic, financial and banking activities in Muslim countries to conform to the Shariah, (b) enhance professional capabilities for research in Islamic economics and banking, and (c) extend training facilities for the personnel engaged in development activities in the member countries.


Research: The IRTI undertakes studies on various subjects relating to Islamic economics, banking and finance, and economic co-operation among Muslim countries. The research projects are implemented through its own staff as well as eminent external researchers. The studies undertaken so far relate mainly to subjects like Zakah, Awqaf administration, Islamic banking, Islamic financial market and instruments Islamization of insurance resource mobilization, fiscal reforms, privatization etc. The total number of the IRTI publications stood at 232 at the end of 1418H.


Training: The training activities of the IRTI are undertaken with an objective of capacity building in the member countries. Some of the areas covered under the training program include private sector development, human resources development, macro economic management and Islamic banking and finance. At the end of 1418H, the total number of training programs organized by the IRTI stood at 96.


IRTI Periodical: In 1414H (1993) the IRTI started publishing a bi-annual journal in English and Arabic under the title of Islamic Economic Studies. It is a refereed journal and has been included in the abstracting service and CD-ROM indexing by the Journal of Economic Literature. It aims at promoting research in the area of Islamic economics, finance and banking.


IDB Prizes: In order to recognize, reward and encourage creative efforts of outstanding merit in the fields of Islamic economics and banking, the Bank established prizes in these two areas in 1408H(1988). Each prize consists of (a) a citation carrying the Bank's emblem, and (b) a cash award of ID 30,000 (US$ 40,000 approx.).


ASSISTANCE TO LEAST DEVELOPED MEMBER COUNTRIES

In addition to the concessionaire loan financing provided to the LDMCs, which stands at about 59% of the total, special attention is paid by the Bank to the LDMCs' technical assistance need. Technical assistance given by the Bank is in the form of either grant or loan, or a combination of both. Up to the end of 1418, ID 53 million (US$ 64 million) (about 63 % of the total), went to the LDMCs on this accounts.


As a further demonstration of its concern the Bank established the Special Account for the LDMCs in 1413H (1992), with an initial amount of US$ 100 million (currently tied with the waqf fund). This fund is used to provide loans on more favorable terms than those provided from the ordinary capital resources of the Bank. The loans are granted for 25-30 years including a 10-year grace period. The Bank, however, charges a maximum fee of 0.75% per annum to cover the actual cost of administering the loan. Up to the end of 1418H 42 operations in 16 LDMCs involving ID 72 million (US$ 101 million) were approved from this account. The Bank's concern for the LDMCs was reflected in organizing the sixth symposium on "Obstacles and Opportunities for Investment in the Least Developed African IDB Member Countries" held at Banjul, the Gambia, in 1993. At the end of 1418H, the total financing approved for the LDMCs stood at ID 2,489 million (US$ 3,055 million), which accounts for 66% of the cumulative financing for all types of IDB operations

 

ISLAMIC CORPORATION FOR INSURANCE OF INVESTMENT AND EXPORT CREDIT

The Islamic Corporation for Insurance of Investment and Export Credit (ICIEC), An affiliate branch of the Bank based in Jeddah was established in Safar 1415H (August 1994) in response to an initiative taken by the COMCEC. The ICIEC has an authorized capital of ID 100 million (US$ 140 million). The Bank has subscribed to and fully paid 50% of the capital, while 20 member countries have subscribed to the remaining 50%. The ICIEC, which commenced its operations in Safar 1416H (July 1995) provides, in accordance with the principles of the Shariah, export credit insurance to cover the non-payment of export receivable resulting from commercial or non- commercial risks. The ICIEC started investment insurance service in May 1998 against country risks, mainly the risks of exchange transfer restrictions, war, civil disturbance, and breach of contract by the host government. The iciec has also been trying to develop co-operation with export credit agencies and insurance companies involved in export credit insurance in member countries.

 

ECONOMIC CO-OPERATION WITH MUSLIM COUNTRIES

The IDB has been actively contributing to the effort of economic co-operation among the member countries. This is reflected in its trade promotion activities, technical cooperation and various other activities. The Bank, in its participation in the efforts aimed at consolidating economic and technical cooperation among the OIC member countries, is guided by the "Makkah Declaration," and the "Plan of Action to Strengthen Economic, Commercial and Technical Co-operation Among the OIC Member States.." The IDB extends full support in collaborating with the OIC and its branchs and affiliated institutions like COMSTECH, COMIAC, ICCI, ISESCO, ICDT, SESRTCIC and particularly with the Standing Committee on Commercial and Economic Co-operation (COMCEC).


Expansion of trade among member countries, a priority sector in the Plan of Action has always been a special area of emphasis in the policy pursued by the Bank. The IDB's contribution to the promotion of this sector has mainly been in the form of providing finance through various schemes as discussed earlier. The Trade Co-operation and Promotion program adopted in 1415H (1995) is another program designed to promote trade. To demonstrate its concern for the promotion of intra-member trade the Bank organized its second symposium on Counter Trade Arrangements: Survey and Critical  Review  in Algiers in 1990. Also to achieve the target of increasing the intra-member trade of the OIC member countries from 10% to 13% over a period of 3 years fixed by the OIC Summit Resolution the Bank constituted a task force. The recommendations of the task force have already been reviewed and are currently under active consideration of the Bank management.


The Bank also organized several international seminars and workshops in different member countries on issues relating to the Uruguay round Agreements and the World Trade Organization (WTO). It also organized the eighth symposium on "Preparing the Ummah for the Twenty First Century: Implications of the Uruguay Round Agreements and the World Trade Organization for the IDB Member Countries" in Damascus, 1997.

Keeping in view the crucial role played by the private sector in the economic development, the Bank has adopted several measures to develop the sector in member countries. These include the establishment of two units in the Business Development Department of the Bank: (a) NGOs unit, and (b) Women and Development Unit. These units are developing policies and procedures to enable the Bank to effectively support NGOs in the member countries for micro financing and poverty alleviation projects, and also to enable women to participate in and benefit from the process of socio-economic development.


Furthermore, the IDB has been supporting Islamic banks the world over. Meetings between the Islamic banks and the IDB are held in conjunction with the annual meetings of the IDB Board of Governors. The Bank maintains very cordial relations with the Islamic Chamber of Commerce and Industry (ICCI). In 1997, the Bank arranged, in collaboration with the ICCI and Jeddah Chamber of Commerce and Industry, familiarization seminars in four Central Asian Republics. Currently the Bank is contemplating directly financing private sector projects in member countries and actively following up on the establishment of an Islamic IFC-type institution within the IDB group. It has also played an important role in establishing the Federation of Consultants from Islamic Countries (FCIC).


The IDB also undertook the OIC Information Systems Network (OICIS-NET) project on the basis of a resolution of the 5th Islamic Summit Conference. The project aims at improving the flow, exchange and sharing of information resources among the member countries of the OIC to support their development activities. The Bank plays a catalytic role in promoting the development of the basic infrastructure of the project. Currently two services-OICIS-LINK and GMS-are available from this utility.


The IDB has also been striving for promoting co-operation among the financial institutions of the Muslim world. It has special cooperation links with the Coordination Group consisting of a number of Arab national and regional development financing institutions and the OPEC Fund for International Development. In addition, it works closely with the NDFIs in member countries  as well as participants in the financing of small and medium scale industries in the form of equity lease installment sales or combined lines. Periodic meetings between the Bank and the NDFIs were initiated in 1400H (1980). The Bank encourages the NDFIs to take advantage of its technical assistance package.


The IDB has made concerted efforts to promote economic co-operation and social development at the sub-regional level through the Arab Maghreb Union (AMU), the Economic Corporation Organization (ECO), The Gulf Co-operation Council (GCC), and the Economic Community of West African States (ECOWAS), the Customs Union of Central African states (CUCAS), Union Douniere des Etats del `Afrique Centrale (UDEAC), and the Association of South-East Asian Nations (ASEAN), and the South Asian Association for Regional Co-operation (SAARC). Over the years, The Bank has forged close ties with regional and international organizations and co financed a number of projects with these institutions. The IDB also maintains special ties with the UN agencies. Important among them are ECA, ESCCWA, ITC, FAO, ESCAP, UNICEF, UNCTAD, UNESCO, UNEP, UNIDO, UNDP, WTO, and WHO.


A recent instance of the Bank's co-operation with international organizations is its participation in the Debt Initiative for the Heavily Indebted Poor Countries (the HIPCs Initiative) in collaboration with the World Bank, IMF and other multilateral development banks. The Bank's participation in the Initiative is in the form of re-scheduling the debt stock of eligible HIPCs.

 

CONCLUSION

The policies and practices of the IDB have tremendously contributed to the development of trade and co-operation among Muslim countries. The Bank has been successful in applying Islamic principles in the field of finance, which helped the avoidance of Riba in financial transactions. But the results of promoting equity financing are not encouraging. More seriously for the IDB, disinvestments have been virtually impossible in the absence of developed stock markets in most Muslim countries. As a consequence, virtually all equity assets are tied up and illiquid. Leasing has also encountered difficulties, but the problem has been overcome by the introduction of installment sale. The IDB was established to fulfill the hopes and aspirations of the Muslim Ummah through a planned program of economic co-operation and assistance to the member countries and to the Muslim communities in non-member countries. It was to function as a type of Muslim `World Bank'.


It can safely be concluded that the hope has been materialized to a considerable extent but it still has miles to go and many things to accomplish. Given proper planning and adequate forethought, it can very well expand the sphere of activities, ameliorate hardships and enhance the socio-economic conditions of Muslims in particular and the world in general. Moreover, if the economies of the Muslim world move away from western secularism in the 21st century the IDB's role would be of far greater importance.

 

APPENDIX - 1

CHART -1: ORGANOGRAM OF THE IDB

                                                               

Board of Governors

 

Board of Executive Directors

 

PRESIDENT

 

Islamic Corporation for Insurance

of Investment & Export Credit

 

 

 

Legal

Department

 

President's

Office

Operations Evaluation

& Audit Office

 

Islamic Research &

Training Institute

Adahi

Project

 

Special Assistance &

Scholarship Office

 

 

Vice-President

(Trade & Policy)

 

Vice-President

(Operations)

 

Vice President

(Finance & Administration)

 

Bank Secretariat

 Department

 

Operations & Projects

Department-1

 

Treasury

Department

 

Trade Finance &

 Promotion Department

 

Operation & Projects

Department-2

 

Finance

Department

 

Business Development

 Department

 

Operations & Projects

Department-3

 

Human Resources

 Management Department

 

Economic Policy & Strategic

Planning Department

 

Central Operations &

Follow-up Department

 

Information Technology Department

 

Islamic Banks'

Portfolio

 

Technical Co-Operation

Office

 

Administrative Services Department

 

Unit Investment

Fund

 

Kuala Lumpur

Regional Office

 

Organization & Management

Development Office

 

Rabat

Regional Office

 

Oicis

Network Project

 

Almaty

Representative Office

 

Bank

 Library.

 

Source: Islamic Development Bank, Twenty-four Years in the Service of Development, 1418H (1997-98)

References

  •      Articles of Agreement (2nd ed., 1983), Islamic Development Bank Jeddah. pp.6-7.

  •      Annual Report (1996), IDB Unit Investment Fund, Jeddah, p. 12.

  •    Rahman, Shah Muhammad Habibur (1988), "The Role of the IDB in Economic Development of Member Countries: An Appraisal". In Frontiers and Mechanics of Islamic Economics; University of Sokoto, Nigeria, p.140.

  •      Annual Report 1418H (1997-98), Islamic Development Bank, Jeddah, p. 103.

  •      Ibid. p.130

  •     Wilson, R. & Khan, M. Fahim (1995). Role of Islamic Banks in Economic Development. In Encyclopedia of Islamic Banking, pp. 86-87, London.

  •      Annual Report (1417H), Islamic Corporation for the Insurance of Investment and Export Credit, Jeddah, p.15.

  •      Twenty-Four Years in the Service of Development (1998), Islamic Development Bank, Jeddah; p. 32.

  •      Wilson, Rodney (1997), Islamic Finance, London, p.63.

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