Islamic Development Bank (IDB)

Founded as a development assistance agency following a conference of finance ministers in 1973, the Islamic Development Bank (IDB) started operations in 1975. The original remit was to facilitate poorer Muslim countries to pay for their oil imports after the substantial price rises of the mid-1970s, with most of this financing being provided on a murabaha basis.

The Islamic Development Bank bought oil and sold it to importing countries at a modest mark-up. By the 1980s, the IDB was involved in more diverse trade financing operations, using ijara as well as murabaha, and from the 1990s it has offered project financing through istisna’a.

Saudi Arabia accounts for over one-quarter of the subscribed capital of this Jeddah-based institution, Iran being the second largest subscriber with almost 10 per cent of the capital. The Islamic Republic views the IDB as a concrete symbol of its cooperation with its Gulf neighbors in helping to promote Islamic finance worldwide.

The Islamic Development Bank raises additional finance from Islamic banks through its specialized funds, such as the Islamic Bank’s Portfolio for Investment and Development and the Unit Investment Fund, and it has also issued sukuk Islamic securities to secure further capital. It invests in waqf religious endowments, and has programmes for poverty reduction as well as scholarships for postgraduate students from poorer Muslim countries attending recognized universities.

Its affiliate, the Islamic Research and Training Organization, provides organizational back-up and sponsors numerous Islamic finance conferences. Islamic Development Bank has evolved into a World Bank for Muslim countries; indeed, it co-funds with the World Bank and other development assistance agencies.