JEDDAH - The Jeddah-based Islamic Development Bank, or IDB, is considering several options to raise funds as part of its resource mobilisation strategy in view of the rise in demand for financing in member countries impacted by the aftermath of the global financial crisis.
According to Mohammed Tariq, head of treasury at the IDB, the total funding requirement of the bank over the next 5 years, is currently estimated at $5 billion with the proceeds to be used primarily for project financing. The bank will raise funds from the market to diversify its source of long-term capital and reduce its reliance on equity subscriptions.
Tariq said that the “zero risk weighting assigned to the IDB under Basel II, EU Parliament directives and the AAA ratings by all three principal international credit rating agencies, mean that the IDB is well-placed to attract strong investor demand for its credit.”
The IDB’s capital markets strategy is aimed at developing a liquid securities market in the Islamic finance industry as part of the bank’s wider strategic objectives; enhancing the multilateral development bank’s profile in the international capital markets; and the creation of eligible assets that can be used as asset backing for the trust certificates, or Sukuk.
Tariq said that the IDB is set to increase its capital by Islamic Dinar 650 million over the next two-and-a-half years. The bank is expected to issue its latest global Sukuk offering very soon.
Tariq stressed that the Sukuk market slowdown in 2008 and first quarter 2009, which is a “sign of maturity” and not a result of a market bubble and consequent correction. He conceded that the statement of the Shariah Committee of AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions) on Musharaka and Mudaraba Sukuk released in March 2009 is a marginal issue, but it did contribute to the slowdown in the market.
The IDB is issuing the latest Sukuk as a tranche under its $6 billion Sukuk and MTN Programme partly aimed at helping member countries to mitigate the impact of the global financial downturn and the rise in commodity prices.