The various changes are laid out in a new five-year plan. ‘We thought about how we should respond to the development of member countries into market economies and to globalisation,’ says Dost Mohammed Qureshi, adviser to the IDB president. ‘The outcome is a five-year plan with three very well defined and thought out goals.’ These goals combine the more traditional IDB mandates of poverty alleviation and co-operation among member countries with the promotion of Islamic banking and finance – always among the bank’s aims but previously on the fringe.
This new commitment was made clear at a summit in Malaysia in June, when the IDB and the Islamic Financial Services Board (IFSB) jointly launched a 10-year masterplan for the development of sharia-compliant finance. ‘The IDB and the IFSB are discussing the details, and a concrete plan for where we want to take the industry will be drawn up over the next few months,’ says Qureshi. ‘The plan will have to be different for different countries – reflecting stages of development – and it will be drawn up in close co-operation with central banks and with the main industry players. Key aims are to improve management of Islamic institutions and to accelerate product development.’
The IDB has over the past two years taken a hands-on role in product development. The bank issued its debut sukuk, worth $400 million, in July 2003. It was explicitly designed to enhance the role of Islamic finance in the international system and create a sharia-compliant product acceptable on international debt markets. The issue was a success, with 70 per cent of the subscription coming from conventional institutions. More recently, the IDB launched a $1,000 million medium-term note (MTN) programme and in June staged the first five-year drawdown, priced at 12 basis points over Libor and listed in Luxembourg.
Tapping the international capital markets is not purely aimed at easing the path for other issuers. It is also symptomatic of what Qureshi describes as a ‘paradigm shift’ in the way both the IDB and other development institutions approach projects. ‘There is a drive by ourselves and institutions such as the World Bank to move from an approval to an implementation culture,’ he says. ‘In the past, many projects have been approved only to be cancelled or left half-completed. But now we are relying on the market for funds, rather than solely on equity from shareholders, this pushes us into implementation. It is expensive for us to leave this money just sitting around eating itself up. The market is a ruthless driver, keeping us on our toes.’
Money raised from the capital markets will also be deployed to increase in scale the projects funded by the IDB. These are typically in the health, education, agriculture and infrastructure sectors of the 55 member states. The main prerequisite for joining is membership of the Organisation of the Islamic Conference and contribution to the bank’s equity (see chart). ‘We are aiming to move upwards from $10 million or $20 million projects to larger schemes implemented at regional level,’ says Qureshi. ‘The bank also needs to increase co-operation with other institutions such as the World Bank, the European Bank for Reconstruction & Development and the African Development Bank to create a more coherent approach.’
In future, project activity will be the bank’s focus. At present, about 70 per cent of operations are represented by trade finance, designed as a practical tool to encourage co-operation among member states. The remainder o