ISLAMIC DEVELOPMENT BANK

INTRODUCTION :
Islamic Development Bank (also known as IsDB), is a multilateral development financing institution located in Jeddah, Saudi Arabia. It was founded by the first conference of Finance Ministers of the Organization of the Islamic Conference (OIC), convened 18 December 1973. The bank officially began its activities on 15 Shawwal 1395H (20 October 1975). There are 54 shareholding member states.

ESTABLISHMENT :
The Islamic Development Bank is an international financial institution established in pursuance of the Declaration of Intent issued by the Conference of Finance Ministers of Muslim Countries held in Jeddah in Dhul Q'adah 1393H, corresponding to December 1973. The Inaugural Meeting of the Board of Governors took place in Rajab 1395H, corresponding to July 1975, and the Bank was formally opened on 15 Shawwal 1395H corresponding to 20 October 1975. Its Headquartered is in Jeddah (Saudi Arabia), the IDB Group also has three regional offices in member countries: Almaty (Kazakhstan), Kuala Lumpur (Malaysia), and Rabat (Morocco). It is also in the process of opening its fourth regional office in Dakar, Senegal. The Bank has field representatives in thirteen member countries namely: Bangladesh, Guinea, Guinea Bissau, Indonesia, Iran, Libya, Mauritania, Nigeria, Pakistan, Senegal, Sierra Leone, Sudan, and Uzbekistan.

HISTORY :
HISTORY FOR FOUR DECADES :

1973 : The Islamic Development Bank (IDB) Established in Jeddah in the Kingdom of Saudi Arabia in 1973, the Islamic Development Bank (IDB) was set up to foster the economic development and social progress of member states, as well as Muslim communities around the world. In the occupied Palestinian territory (oPt), IDB works extensively in providing technical assistance, as well as funding for a variety of development projects. 1975 : Oct 20, 1975 - The Islamic Development Bank is the Organization of the Islamic Conference international financial institution. It is headquartered in Jeddah, Kingdom of Saudi Arabia. The bank's members are 56 OIC member states. The IDB commenced its operations on October 20, 1975. The bank is an intergovernmental lending institution whose members are Muslim borrowing states. It was the first financial institution emerging as a result of an oil revenue flow into the Persian Gulf 1983 : The Islamic Development Bank Jeddah, in order to improve the socio-economic conditions of the Muslim Communities in Non-Member Countries around the world and to make meaningful contributions to the development of their countries, launched its scholarship programme in 1983. The Bank is trying to assist and develop the potentialities of Muslim students by awarding scholarship

to the scholars who are unable to pursue studies due to financial difficulties. Then Islamic Bank Bangladesh was established in March 13, 1983. 1999 : Nov 1999 - ICD is a multilateral organization, affiliated with the Islamic Development Bank (IDB) Group. It was established by the IDB Board of Governors during their 24th annual meeting held in Jeddah in November 1999. May 1999 May 1999 - Jeddah : The Jeddah-based Islamic Development Bank (IDB) will organize the First Islamic Trade Fair here from March 18-23, 2001, in cooperation with the Jeddah Chamber of Commerce and Industry, and it would be in the framework of the IDB's 25th anniversary celebrations that began in May 1999. The aim of the fair would be to increase trade exchanges and investments between member countries by giving each country an opportunity to put up a stall 2003 : JEDDAH, 9 October 2003 The Islamic Development Bank (IDB) and the UN Food and Agriculture Organization (FAO) began a two-day joint high-level technical meeting at the IDB headquarters here yesterday, with the aim of formulating regional programs for food security. Toward sustainable food security and poverty alleviation of the Near East countries is the theme of the deliberations at the meeting inaugurated by IDB President Ahmed Muhammad Ali and FAO 2005 : Jan 2005 - Observers also see the conference as an important gauge for the government's ability to reverse weak private investment, which collapsed entirely during the 1997-1998 Asian financial crises, after a conference in January 2005 when less than 10 percent of projects materialized. Conference participants include 400 domestic entities, 460 foreign, and 200 representing government. Among them are 350 major businesses such IBM Corp., German engineering conglomerate

2007 : Jan 8, 2007 - JEDDAH, 8 January 2007 The development of Muslim communities in non-Muslim countries is the focus of a four-day workshop organized by the Islamic Development Bank (IDB). Representatives of leading Muslim NGOs from 15 countries are taking part in the workshop which was opened here yesterday by Dr. Muhammad Hassan Salem, acting director of IDB's Special Assistance and Scholarship Program Office (SASPO) 2009 : Apr 28, 2009 - A news release from the Asian Development Bank, dated 28 April 2009. ADB has also published Islamic Republic of Afghanistan: Railway Development Study , with some background and a handy map. Boost for Afghan Plan to Develop Railway System MANILA, PHILIPPINES - Afghanistan's push to develop a railway system that will spur economic growth and make the country a key transit and trade route within Asia is to receive support from the Asian Development Bank .

MEMBERSHIP :
The present membership of the Bank consists of 56 countries. The basic condition for membership is that the prospective member country should be a member of the Organization of the Islamic Conference (OIC), pay its contribution to the capital of the Bank and be willing to accept such terms and conditions as may be decided upon by the IDB Board of Governors. Organization of the Islamic Conference (OIC) : The Organization of the Islamic Conference (OIC) is an international organization with a permanent delegation to the United Nations, with 57 member states. The Organization attempts to be the collective voice of the Muslim world (Ummah) and attempts to safeguard the interests and ensure the progress and well-being of Muslims. The official languages of the organization are Arabic, English and French.

Goals & history of (OIC) : The primary goals of the OIC are, according to itself, "to promote solidarity among all member states; to consolidate cooperation among member states in economic, social, cultural, scientific, and other fields of activity; to endeavor to eliminate racial segregation and discrimination and to oppose colonialism in all its forms; to support the Palestinian people in their struggle to regain their national rights and to return to their homeland; and, to support all Muslim people in their struggle to safeguard their dignity, independence and national rights"

OPERATIONS & OBJECTIVES:

The purpose of the Bank is to foster the economic development and social progress of member countries and Muslim communities individually as well as jointly in accordance with the principles of Shari'ah . This is what distinguishes the IDB from other regional and international developmental institution; in fact it is obliged by its own charter to follow the Shariah in all of its functions and operations. The Islamic prohibition of interest and the implications thereof have forced the IDB to have certain distinguishing conceptual and operational features. The IDB foresees different ways of financial involvement with its clientele from the ways of the conventional multinational development banks. The equity participation and profit sharing functions of the bank together with the Shariah implied restrictions on the powers of the Bank in so far as accepting deposits, raising funds and suitably investing funds not needed in its operations are concerned, are some of the major issues that the bank had to consider in its planning stages. Among activities undertaken by IDB there are participation in equity capital of productive projects, investment in economic and social infrastructure projects, the promotion of foreign trade, primarily in capital goods and acceptance of deposits or the raising of funds in any other manner. One of the strategic objectives of IDB is to improve and enhance the level of intra trade among its member countries from the developing world. Therefore, the bank assists in the promotion of foreign trade among Muslim countries, by

providing financial assistance to member countries and Muslim communities in non-member countries and by developing human capital.

OBJECTIVES IN BRIEF :
- Promotion of Islamic financial industry and institutions - Poverty alleviation - Promotion of cooperation among member countries Priority Areas: To realize these objectives, the Islamic Development Bank IDB Group will focus on the following six priority areas. - Human development - Agricultural development and food security - Infrastructure development - Intra-trade among member countries - Private sector development - Research and development (R & D) in Islamic economics, banking and finance.

FINANCING BY IsDB :
Unlike other multilateral financial institutions, the IDB finances its operations through a number of modes of finance that are compatible with Shariah. Loan financing is mainly intended for social, economic and infrastructure projects that are unlikely to be revenue generating and have a long implementation phase. These include schools, water supplies, health centers, hospitals, rural electrification, roads, ports, airports, irrigation schemes and land development. In addition, the IDB participates in the share capital of new or existing enterprises, through equity participation, even though a ruling of the Islamic Fiqh Academy prohibits equity participation with companies that use interest-based

financing, therefore, the IDB has taken initiatives to assist successful companies in utilizing alternative Shariah-compatible modes of financing in close collaboration with Islamic banks. Leasing is another mode of financing used by the IDB because it meets the objective of providing finance for development projects that are sufficiently remunerative to meet 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. Application of mark-up rate is determined on the basis of sector as well as on rate of return of a project. Installment sale has also become a most significant mode of financing because of its operational flexibility. Through this mode, IDB purchases equipment and machinery, reselling it to the beneficiary at a higher price. The main operational difference between this mode and lease financing is that ownership of the asset is transferred to the beneficiary on delivery in the case of installment sale. Besides, the purpose of the Longer Term Trade Financing Scheme is to promote the export of non-traditional goods among OIC member countries through the provision of necessary funds. The scheme has its own independent budget and resources. It is managed and operated under the supervision of the IDB. Moreover, IDB provides technical assistance to member countries for identification, preparation and implementation of projects as well as for institution building. Priority for technical assistance is given to LDMCs as well as regional projects. The assistance is extended in the form of a loan, grant or both. IDB also finances consultancy services to assist its own staff in project preparation and follow-up; it encourages the establishment of a Federation of Consultants from Islamic countries, and provides continuous support for the Federations activities. Furthermore, the main window for providing funds to the private sector is the extension of lines of finance to National Development Financial Institutions (NDFIs) in member countries. This mechanism helps aims at assisting development in small and medium scale enterprises. Lines are utilized through equity participation, leasing and installment sale operations. New procedures have even been added to provide greater flexibility and incentives for the effective utilization of IDB lines by introducing free limits; higher remuneration for national development banks; two levels of upper and lower

limits for financing sub-projects, depending on the nature of the national development bank; and shortening the period for processing sub-projects.

APPLICATION OF ISLAMIC PRINCIPLES :

IDB has been successful in applying Islamic principles in the field of finance despite the fact that the benefits to the poorer Islamic countries have been limited. It plays a central role in the development of the Islamic financial sector globally through co-operations with central banks; with national development banks and financial institutions and with regional and international financial agencies. In fact, Regular meetings are held between the Governors of central banks and the representatives of OIC member countries to discuss ways and means of improving co-operation among the financial institutions of member countries. The IDB also expands co-operation with the national development banks of the member countries to grant lines of equity, lines of leasing and lines of installment sales to these banks so that they can advance finance to viable local projects. This provides the banks with hard currency and facilitates financing operations for the IDB. And the bank helps to promote a greater flow of resources to its member countries from other financial agencies, through its co-financing arrangements with regional and international financial institutions such as the OPEC Fund, the BADEA and the Arab Fund for Economic Aid and Social Development.

FUNCTIONS :
The functions of the Bank are to participate in equity capital and grant loans for productive projects and enterprises besides providing financial assistance to member countries in other forms for economic and social development. The Bank is also required to establish and operate special funds for specific purposes including a fund for assistance to Muslim communities in non-member countries, in addition to setting up trust funds. The Bank is authorized to accept deposits and to mobilize financial resources through Shari'ah compatible modes. It is also charged with the responsibility of assisting in the promotion of foreign trade especially in capital goods, among member countries; providing technical

assistance to member countries; and extending training facilities for personnel engaged in development activities in Muslim countries to conform to the Shari'ah. The IDB also acts as a catalyst in these intra trade activities by participating in equity capital through investment in economic and social infrastructure projects and by granting loans for productive projects in the private and public sectors. Equity-financing and profit-sharing functions are the primary modes of operational financing and loan-financing adopted by the IDB. Furthermore, one of IDBs missions is to undertake research to enable the economic, financial and banking activities in Muslim countries to conform to the Shariah and to develop Islamic finance as a competitive advantage. In fact, thanks to the role played by the IDB, the Islamic baking world has stepped up efforts to standardize regulation and supervision. The bank plays a key role in developing internationally acceptable standards and procedures and strengthening the sectors architecture in different countries.

Scholarship and Special Assistance :

Islamic Development Bank Scholarship Programme provides education opportunities for the academically Islamic Development Bank Scholarship Programme provides education opportunities for the Islamic meritorious and financially needy young Muslim students from non-IDB member countries. The programme enables them to pursue an undergraduate or first-degree study in university and to train them in specified fields in order to improve their social and economic conditions. It also helps them preserve their cultural and religious identities and make a meaningful contribution to the development of their communities and countries. At present, the Scholarship Programme focuses on Medicine, Engineering, Agriculture and other related fields such as Dentistry, Pharmacy, Veterinary Science, Nursing, Nutrition Study, Computer Science, Forestry and Fishery. Additional areas of study include Administration, Management, Marketing, Finance, Banking and Accountancy.

Scholarship Programme: The Bank's fund and implement its scholarship programmes as part of its overall effort in the development of human resources of its member countries and those of the Muslim communities in non-member countries. There are three scholarship programmes offered by IDB: Scholarship Programme for Muslim Communities in Non-Member Countries M.Sc Scholarship Programme in Science and Technology for IDB Least Developed Member Countries. Merit Scholarship Programme for High Technology. The IDB Scholarship is tenable at any recognized government or private universities in the students' own countries but if not possible, the students may be sent to IDB member countries which participate in the Programme. It is a scholarship programme and a development programme at the same time, since the scholarship is given as an interest-free loan (Qard Hasan) to the students and as a grant to the Muslim communities to which they belong. Under the Programme, the students are required to repay the loan after graduation and gainful employment, in easy installments, to a Waqf (Trust) fund set up by the IDB in each non-member country benefiting from the Programme.

Special Assistance Programme : The Special Assistance Programme was established in 1400H with the objective of assisting Muslim communities in non-member countries. It helps in developing and strengthening institutions involved in education social and health services to improve wellbeing of the masses and preserve their Islamic and cultural identity. It also aims at alleviating the suffering of communities afflicted by natural disasters or conflicts in both member and non-member countries.

CAPITAL :
Up to the end of 1412H (June 1992), the authorized capital of the Bank was two billion Islamic Dinars (ID) {A unit of account of IDB which is equivalent to one Special Drawing Right (SDR) of the International Monetary Fund (IMF)}. Since Muharram 1413H (July 1992), in accordance with a Resolution of the Board of Governors, it became six billion Islamic Dinars, divided into 600,000 shares having a par value of 10,000 Islamic Dinars (ID) each. Its subscribed capital also became four billion Islamic Dinars payable according to specific schedules and in freely convertible currency acceptable to the Bank. In 1422H, the board of governors at its annual meeting held in Algeria decided to increase the authorized capital of the Bank form ID 6 billion to ID 15 billion and the subscribed capital from ID 4.1 billion to ID 8.1 billion. According to the Directive of the Third Extra-Ordinary Session of the OIC Islamic Summit Conference held in Makkah Al-Mukarramah on 7- 8 December 2005, calling for a substantial increase in the capital stock of IDB in order to enable it to strengthen its role in providing financial support and technical assistance to its member countries, the Board of Governors of the IDB in its 31st Annual Meeting in Kuwait decided to increase the authorized capital stock of IDB by 15 billion Islamic Dinars to become 30 billion Islamic Dinars and the subscribed capital by 6.9 billion Islamic Dinars to become 15 billion Islamic Dinars.

IDB Unit of Account (Islamic Dinar) :

A unit of account of Islamic Development Bank which is equivalent to one Special Drawing Right (SDR) of the International Monetary Fund. Composition of the currencies in SDR basket denominating in Islamic Dinar are USD 44%, EUR 34%, GBP 11% and JPY 11%.