The World Bank has estimated that capital investments in infrastructure of US$93 billion per year will be required in sub-Saharan Africa to sustain growth in the region, with only US$40 billion currently being invested. Sources of development finance such as the IDB are working to meet this need through engagement with private sector operators. The IDB is a growing force in development finance, having more than tripled its authorized capital to US$150 billion in May 2013 and is also considering creating an ‘Islamic megabank’.
What is the IDB?
The IDB is an international financial institution established in 1973 to foster the economic development of both member countries and Muslim communities in non-member countries, via Shariah compliant financing. The IDB participates in equity capital; grants loans for projects and enterprises; and assists in the promotion of trade in capital goods between member countries. The IDB is rated ‘AAA’ by all major ratings agencies, and has been designated a Zero Risk Weighted Multilateral Developmental Bank (MDB) by the Basel Committee on Banking Supervision and the Commission of the European Communities. The IDB’s financing operations derive funding both from shareholder equity and as of 2003 from the market via the issuance of Islamic bonds, or Sukuk. There are currently 56 member states in the IDB, including 27 in Africa. The primary membership requirements of the IDB are membership of the Organization of Islamic Cooperation, payment of the share of capital due, and compliance with the decisions of the IDB Board of Governors.
What contributions does the IDB make in the private sector in Africa?
The IDB invests a significant portion of its resources in stimulating private sector growth. In 2003, the IDB announced a Group Strategic Framework, including six ‘priority areas’ – one of which was private sector development. The bank therefore extends loans for the financing of infrastructure and agricultural projects, such as roads, canals, dams, schools, hospitals, housing, and rural development both in the public and private sectors.
Originally published in Islamic Finance news Volume 10 Issue 47 on 11/27/13.
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