The Islamic Development Bank (IDB) on 5 July signed an $84 million short-term financing deal, called a two-steps Morabaha agreement. The package is to be used to increase the availability of financing for international trade between IDB member countries. The twin prongs of this new style of package will allow: the IDB to raise funds from financial institutions for its own projects; and the IDB to provide funding to other financial institutions for trade financing transactions.
‘It is a reaction to the realisation that the IDB has the liquidity and the potential to do big-ticket deals, but some of the smaller Islamic institutions do not, ‘ says a senior banker involved in the deal. ‘Initially it was thought of as a way of putting syndicated deals under an IDB umbrella, but then it became clear that the appetite for some of the country risk carried by IDB member states was low among the smaller Islamic institutions.’
He says the two-steps Morabaha approach was developed to share risk and increase flexibility. ‘Effectively, the IDB is taking a commercial borrowing within an Islamic structure, ‘ says the banker. ‘And it is getting very thin pricing.’
The facility has an availability period of six months and each part will have tenor of six months. It is understood that pricing is equivalent to 25 basis points over Libor.
The package was jointly arranged by Gulf International Bank (GIB) and Kuwait Finance House. Other participants in the deal include Al-Muthanna Investment Company, Standard Chartered Bank, ABN AMRO, Arab National Bank, Beit Ettamwil Tounsi Saudi, Dubai Islamic Bank, Al-Aqsa Islamic Bank and Jordan Islamic Bank for Finance & Investment.
It is understood that this is the first of three financing packages being prepared for the IDB. The two others in the pipeline are thought to be worth less than $84 million.