Islamic Development Bank (IDB) – a Financial Institution with Meaningful Impact

Islamic Development Bank (IDB) Tower, Jeddah, Saudi Arabia

The experience of walking the halls of the impressive 21-story Islamic Development Bank (IDB) Tower in Jeddah, Saudi Arabia and its surrounding IDB Group buildings is unlike any in the world. Finance professionals hailing from seemingly every corner of the Muslim markets – from Malaysia, Indonesia to Kazakhstan and Turkey; from Pakistan, Bangladesh to Algeria, and Nigeria and more – work here.

Walking around, one can hear discussions on various financial transactions or just social chatter, with regular pauses for passionate ‘Assalam Alaikum’s’ and ‘Wa’alikum Assalam’s’ flowing in different accents. During prayer time, every other floor seems to turn into a prayer hall where everyone, from receptionists to managers and executives alike, fall-in to answer the call of prayer. Between the buildings there are grass lawns and shaded walkways covered by trees, with even a cricket pitch for the Bank’s cricket lovers.

Amidst all of this, the IDB professionals are engaged in perhaps the most influential financial investing work being done in the Muslim world – from funding large infrastructure projects to private sector financing – Muslim economies, both advanced and developing ones, are benefiting. Under a new inspired vision being championed by its President, Dr. Ahmad Mohamed Ali, and driven with high energy by its executives such as Mr. Khaled M. Al-Aboodi, (CEO of ICD, an IDB Group firm,) IDB is delivering significant impact to its members economies.

Consider this: Over the past thirty-five years through the end of 1429H (2008), the Bank’s cumulative net financing reached USD $56.9 billion for supporting 6,103 operations to member countries in the key sectors of their economies such as public utilities, transport & communication, social services, agriculture, industry and mining and financial services.

In addition, the Least Developed Member Countries have accounted for about 28 percent of the total IDB Group financing.

Recent projects have included USD $40 million financing for the Djenne Agricultural Development Project in Mali, a USD $100 million financing facility for the Renewable Energy Program in Turkey, and Islamic Financial Institution investments in Central Asia.

This far reaching Muslim market investment impact has been unlike any other financial institution– and one that is topped only by its equally impressive financial performance.

In an environment of acute socio, political and economic challenges across the Muslim markets, it is important to acknowledge the immensely positive role that IDB has been playing.  Today, the impressive IDB Tower stands as the gateway to financing for the Muslim countries and communities globally.

Organizational Structure/ Vision

IDB provided USD $8.2 million for Duress General Hospital, Phase-II, Albania. Completed in December 2008

The IDB is an international financial institution that officially commenced operations in 1975. The purpose of the Bank is to foster the economic development and social progress of member countries and Muslim communities globally in accordance with the principles of Shari’ah (Islamic) Law.

Initially, 22 countries of the Organization of Islamic Conference (OIC) elected to sign up for membership. Today, that number has more than doubled to include 56 member nations from Africa, Asia, Europe and Latin America. The Bank’s authorized capital has increased fifteen-fold from USD $3 billion in 1395H (1975) to USD $44 billion in 1429H (2008). The reason for this seems simple: IDB has a solid track record of delivering results and creating a lasting benefit for member countries.

This is also evidenced by IDB receiving an “AAA” rating by Standard & Poors, and Moody’s, as well as being classified as a zero-risk weighted multilateral development bank under Basel Capital Accord II.

Dr. Ahmad Mohamed Ali, President and Chairman, Board of Executive Directors

It is important to acknowledge the pioneering leadership IDB’s current President Dr. Ahmad Mohamed Ali has provided for the past 24 years. He has inspired a high impact vision and is a strong believer that Islamic principles and their application in economics and banking can make a significant contribution to solving current economic and human development challenges.

Under his leadership, IDB is successfully working toward its year 1440H (2018) Vision to become a world-class development institution inspired by Islamic principles. The IDB 1440H Vision defines the Bank’s role as “a leader in fostering socio-economic development” that is rooted in human development.

Today, IDB has expanded to become the IDB Group, which consists of five separate entities: 1) Islamic Development Bank (IDB) 2) Islamic Research and Training Institute (IRTI) 3) Islamic Corporation for Insurance of Investment and Export Credit 4) Islamic Trade and Finance Corporation (ITFC) and 5) Islamic Corporation for the Development of the Private Sector (ICD).

Islamic Corporation for the
Development of the Private Sector (ICD)

The ICD is the organization within the IDB Group with a clear and exclusive mandate to promote the development of the private sector in the IDB member countries. Given the importance of private sector investment, ICD is playing a growing and critical role within the IDB Group.

Mr. Khaled M. Al-Aboodi, CEO of ICD from 2007, has since taken ICD on a very strategic and proactive path of fostering private sector investments. He acknowledges that a core part of the mission of ICD is to support Islamic financial institutions, especially to extend financing to small-and-medium-sized enterprises (SMEs).

One clear example is his recognition of the support needed to establish Islamic Finance Institutions outside the MENA (Middle Eastern, North African) region. Tamweel Africa has been setup in Senegal to manage Islamic Bank investments in African markets of Guinea, Senegal, and Niger. ICD would also be supporting Tamweel Africa through lines of financing to support its SME activities, equity injections and trade finance. ICD is also expanding its efforts in the Central Asian markets being the first to support setting up Islamic finance in Azerbaijan.

The ICD provides its clients with a variety of financial products such as direct financing through equity participation, term-financing, lines of financing to commercial banks and National Development Financing Institutions, short-term corporate finance, asset management, structured financing, and advisory services to private and public companies.

Over the period 1421H-1429H (2001-2008), the ICD approved 132 projects (net of cancellations) for 28 member countries, amounting to ID (Islamic Dinar) 462.4 million ($987 million). ICD’s financing went predominantly to the industrial sector (32 percent); financial sector (21 percent); real estate (18 percent) and transportation sector (10 percent).

The ICD has been instrumental in forging inter-sectoral partnerships between private and public sectors, pioneering innovative financial products which conform to principles of Shari’ah, and attracting world-class institutional investors to co-invest in and facilitate the execution of IDB’s developmental projects.

THIQAH
The Islamic Development Bank Group Business Forum

A New initiative of the Islamic Development Bank (IDB) Group, being led by ICD, to serve as:

Strong performance in Financial Crisis

Despite a global shrinkage in available credit, and decreased willingness of many multinational banks to issue credit, IDB’s liquidity remained very healthy and largely insulated from the first wave of global economic crisis. In fact, the average asset growth for the top-500 Islamic banks and financial institutions actually grew 27.6 percent from November 2007 to November 2008. The Shari’ah injunction prohibiting trade of debt instruments and speculative financial products (like derivatives) alike effectively insulated IDB and Shari’ah-compliant Islamic Banks from owning any “toxic” assets plaguing the books of US financial institutions.

As a result, IDB’s net income registered strong growth of 18.8 percent, while increasing overall financing by 5 percent, and project financing by 17 percent to member countries. IDB received the highest ratings from Standard & Poor’s, Moody’s, and Fitch for long-term debt rating for a seventh consecutive year.

Talent Strategies

“Brain Drain” is a crushing problem facing many developing countries throughout the world, especially the member countries of the IDB. The problem is cyclical in nature: the worse the local socio-economic condition, the harder it becomes to retain intellectual talent.

To combat this, IDB has been heavily funding education projects, as well as setting up several scholarships to promote cost-free education and to develop and retain intellectual capital within the member countries. The Scholarship Programme for Muslim Communities (SPMC) was established in 1983, and is aimed at developing scientific and technological capabilities of the human capital in both member and non-member countries. To date, over USD $70 million has been disbursed, benefiting 9,219 students from over 48 countries.

The Young Professional Program (YPP) is another initiative launched by IDB and ICD itself with the mandate to attract high-quality intellectual talent from across the Muslim world.. The objective of the program is to offer, attract and retain world-class talent by offering luxurious benefits, comfortable perks, and superb professional development, while instilling a deep rooted sense of ummah-centric community and responsibility.

The YPP initiative hopes to attract young, highly talented, and diverse candidates to join and stay with IDB. The eligibility criteria are pretty stringent though, ensuring those who make the final cut will be amongst the finest company of top intellectual pedigree. The program is basically an 18-month rotational program composed of 3 separate 6-month rotations in different departments within IDB. Amongst the perks are completely tax-free income, housing allowance, car allowance, several round trip airfare tickets to the country of citizenship, 5% salary stipend to spouses (if married), and even more if there are children. Indeed, they are serious about trying to attract world-class talent.

Challenges and Future

No organization is without its short-comings and challenges. IDB is no exception. Privately, many business leaders or entrepreneurs talk of the bureaucracy that exists within the IDB and its limited reach.

However, given that there aren’t many such success stories accross the Muslim world–IDB’s critical impact has to be acknowledged and encouraged.  The IDB Group has constantly been paving new roads for other institutions to follow and in the process have delivered significant impact.

One of the key challenges that IDB is faced with is its scope versus reach.  The reality is, given the extent and size of challenges faced by its 56 member countries (which make up a quarter of the world’s population and land, and have a combined GDP of USD $5 trillion+), there is still a very limited reach with its USD $4-5 billion financing outlays a year. A smart strategy IDB has taken is to also invest and co-invest in other financial institutions to achieve a multiplier effect.

To reach a wider audience with impact, additional innovative strategies and solutions will have to be developed.  Some avenues to scale and strengthen include prioritizing Venture Capital development to ignite SME’s and entrepreneurship, as well as focusing on long-term developmental infrastructure (such as in Education.)

Another challenge for IDB leadership to ensure its trailblazing momentum is to promote the next generation of talent and leadership within its ranks to navigate the increasingly globally connected, competitive and technology driven economies.

In conclusion, even with any short comings within the IDB Group, it is hard to argue against their significant developmental impact across the Muslim markets.

IDB is putting a vision in practice for the Islamic financial sector that activates the entire spectrum of Islamic finance–including public finance, development finance, private philanthropy, microfinance, Zakat and Awqaf, thereby enhancing the impact of socio-economic development.

As the next generation, Islamic investment firms focus on the Muslim markets, we hope they will succeed in complimenting IDB’s efforts and vision.