Islamic Development Bank (IDB)

THE Islamic Development Bank (IDB) is an international financial institution established in accordance with the Declaration of Intent issued by the Conference of Finance Ministers of Muslim countries held in Jeddah in Dhul Q'adah 1393H (1973).

The inaugural meeting of the Board of Governors took place in Rajab 1395H, corresponding to July 1975. The bank formally opened on 15 Shawwal 1395H corresponding to Oct 20, 1975.

The primary purpose of the bank is to foster the economic development and social progress of member countries and Muslim communities in non-member countries, individually as well as jointly, in accordance to the principles of syariah i.e. Islamic law. The present membership of the bank consists of 53 countries.

As the only multilateral development banking institution that operates wholly according to the principles of syariah the membership of the bank covers countries in the continents of Africa, Asia, Europe, the Middle East and Latin America.

The basic condition for membership is that the prospective member country should be a member of the Organisation of the Islamic Conference, pay its contribution to the capital of the bank and be willing to accept such terms and conditions as might be decided by the IDB Board of Governors.

The principal functions assigned to the bank are to participate in equity capital and to 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.

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; and extending training facilities for personnel engaged in development activities in member countries to conform to syariah.

The IDB had to pursue these objectives in a vacuum so to speak as there was no Islamic bank at the time of its inception to serve as a model. Nonetheless, in the relatively short period of its existence, the bank has made considerable progress in several areas.

The current authorised capital of the bank is six billion Islamic dinars and its subscribed capital increased to four billion Islamic diners payable according to specific schedules and in freely convertible currency acceptable to the Bank.

Money and capital markets
The flow of financial resources from Muslim countries in the beginning to conventional financial markets was understandable since in those days Muslims did not have a viable global Islamic financial system as an alternative to the conventional system.

The dearth of financial instruments has led to serious liquidity management problems for Islamic. financial institutions and has curtailed the development of a global Islamic financial market

Thus, the establishment of an international Islamic financial market is not only necessary but need to be implemented on an urgent basis. Such a market will provide an avenue for efficient management of Islamic assets and liabilities at the international level.

The IDB is embarking, jointly with a working group comprising the central banks and monetary authorities of some member countries, on the development of an International Islamic Financial Market (IIFM) to serve the urgent need of member countries for an efficient cost effective and more business?friendly financial intermediary. It is expected to help attract capital inflows that are necessary for development in IDB member countries.

A main goal of the IIFM will be to create an interactive framework for cooperation world?wide among different market players with varying needs to help deepen the Islamic financial market and make it more competitive, convenient and accessible to all.

This should help strengthen the architecture of the international financial system by its twin characteristics: it will be complementary to conventional banking and finance where the latter is compatible with syariah principles of fairness in sharing risk/rewards by all market players, and will provide a more business?friendly alternative to conventional finance where the syariah principles are not observed.