Islamic Development Bank

Following a declaration from the conference of Finance Ministers of Muslim countries in 1973 at Jeddah, things started to move to establish a financial institution. The institution took the ultimate shape as Islamic Development Bank. The inauguration through a meeting of the Board of Governors of the Bank happened in July, 1975 and formal start up took place on 20 October, 1975.

The aim of Islamic Development Bank is to promote the economy and society of the member countries and the Muslim community through financial and other supports to the members. The Bank has 56 members till now. The fundamental requirement for a membership is the membership of OIC and payment of capital share to the Bank.

The head quarter of the bank is situated in Jeddah, Saudi Arabia. The Bank has four regional offices at Rabat in Morocco, Kuala Lumpur in Malaysia, Almaty in Kazakhstan, and Dakar in Senegal. It has deployed field representatives in the member countries of Afghanistan, Azerbaijan, Bangladesh, Guinea Conakry, Indonesia, Iran, Nigeria, Pakistan, Sierra Leone, Sudan, Uzbekistan and Yemen.

Lunar Hijra Year is taken as the financial year of IDB and its official language is Arabic. In addition to that English and French are also treated as working languages of the Bank.

Authorized capital of IDB in June, 1992 was 2 billion Islamic Dinars (ID). An ID equals to one Special Drawing Right (SDR) of International Monetary Fund. The Board of Governors approved a resolution to enhance the approved capital to 6 billion of ID divided into 600,000 equal shares each having a value of 10,000 ID. The Board also approved its subscribed capital to be 4 billion of ID and this was to be paid according to a schedule and in a currency that is easily convertible. The Board in its Annual Meeting of 2002 decided to further increase the authorized capital from 6 to 15 billion of ID and the subscribed capital from 4.1 to 8.1 billion of ID. Being advised by the special session of OIC summit in 2005, the bank came forward to enrich its capital stock. Thus the Bank would gain better ability to provide financial and technical assistance to the member countries. The Board of Governors, in its 31st Annual Meeting decided to make the authorized capital 30 billion in place of 15 billion of ID and subscribed capital 15 billion which was 6.9 billion of ID before.

Articles of Agreement

Articles of agreement of IDB describe the membership policy and principles of structure, management and operating ideology of the Bank.

Board of Governors

According to the article 27 of the agreement Islamic Development Bank would have a Board of Governors. Each member country has to nominate a Governor and an Alternate. The Alternate has no voting power unless the Governor is not present in a meeting. The Board selects its Chairman in the annual meeting and he performs his duties till the next Chairman takes up. Governors and Alternates are not entitled for any remuneration. But the Bank bears the expenses of them incurred to attend the meetings. The Board of Governors possesses all the powers of the Bank. The Board is authorized to delegate any power to the Board of Executive Directors other than the following:

  • Inclusion of new members and setting the terms of inclusion
  • Enhancement or reduction of authorized capital of IDB
  • Suspension of membership
  • Decision of any appeal on interpretation of the Agreement presented by Board of Executive Directors
  • Final decision of any general agreement with other international agencies
  • Election of the President of the Bank
  • Election of the Executive Directors
  • Fixation of terms and conditions of service contract for the President and E.Ds
  • Approval of Audit Report, General Balance Sheet and the Statement of Profit/Loss of the Bank
  • Determination of the reserve and distribution of the ultimate income /surplus
  • Amendment of the Agreement
  • Decision on termination of Bank’s operation
  • Any other power imposed specifically on the Board by the Agreement


Working Procedure of the Board

The board holds an annual meeting every year. It may call a meeting any time if felt necessary. On request by at least one third members the Board of Executive Directors may arrange a meeting of the Board of Governors.

A quorum of the Board meeting is fulfilled by a majority members provided, at least two third of total voting power of the Board is present.

The Board may establish a process to substitute a meeting by voting on a single issue to be settled.

The Board is authorized to form subsidiary bodies if it’s deemed appropriate for smooth functioning of the Bank.

Board of Executive Directors

At present the number of Executive Directors is eighteen. They are elected by the Board of Governors. The EDs are to be highly competent in Economics and Finance. A member of the Board of Governors can’t be a member of the Board of EDs.

The Board of Governors reviews and is authorized to increase the size of the Board of EDs if situation demands. In the mean time such increase was done thrice.

Executive Directors are elected for three years and may be re-elected. They are to continue in office till the successors take up.

The responsibility of Board of EDs is to formulate directives and guide lines for normal functioning of the Bank. To fulfill this primary demand the Board is able to exercise all powers imposed on it by the Agreement and the powers delegated to it by the Board of Governors. Specifically the powers of the Board of EDs are as the following:

  • Preparation of working paper for the Board of Governors
  • Deciding normal issues in operations of the Bank as per the general directives of the Board of Governors
  • Submission of accounts in each annual meeting for approval of the Board of Governors
  • Approval of the budget of the Bank

Working Procedure of the Board of EDs

The Board of EDs carries out its responsibilities staying at the principal office. It sits in meetings as frequently as required by the activities of the Islamic Development Bank.

A quorum of the Board is the majority of total members, if a two third of total voting power is present.

Any member country may send a representative to attend a meeting of the Board of EDs who has no representation in the Board, but the agenda of the meeting is related to that member. In such a case the representative has no voting authority.

The President

The Board of Governors elects the President of the Islamic Development Bank. He must be a citizen of any of the member countries. Being the President he can’t be a Governor or an ED.

The President is elected for five years and he may be re-elected. With a two third majority of voting power the Board of Governors may stop the President from continuing in his office.

The President is the chairman of the Board of EDs. But he has no voting authority except deciding opinion in case of equal votes on both sides. He may attend the meeting of the Board of Governors but without any voting power.

The president represents the Bank in legal matters.

Vice President(s)

Having recommendations from the President, the Board of EDs may appoint one or more Vice Presidents. He or they must be national(s) of member nations. The Board of EDs decides the authorities and responsibilities of the Vice President(s). However, in absence of the President, the vice president or the ranking Vice President may exercise the authority of the President. Being a Vice President one can’t remain as a Governor or an ED.

The Vice President(s) attend the meetings of the Board of EDs but without any voting power. The exception is the deciding vote while he is acting as the President.

Principles and Strategies

Principles of Operation

The Islamic Development Bank follows Shari’ah in its operation. Shari’ah is the set of rules extracted from the Holy Quran, the Sunnah and ijtehad. The Bank operates according to Shari’ah on the following basic principles:

  • Interest is prohibited in all sorts of transactions including debt, sales etc.
  • As the return is not guaranteed both parties must share profit or loss whatever the case is

The Bank never collect fund from market. Its activities are continued by the share-holders contribution and other incomes. Other incomes include retained earnings, income from foreign trade and fund generated through Project financing.

IDB makes funding in trade and development schemes for both public and private sector projects. It’s interest is in all sizes of programs like big, medium and even small.

Muslim communities in non-member countries are supported by IDB through study scholarships and training opportunities. IDB helps transfer of knowledge within member countries to make each member self sufficient in expertise. The Bank works on priority basis to promote the members in science and technology. It finances scholarships for meritorious students of High Technology in the member countries to perform PhD programs and post Doctoral researches at world famous institutions.

IDB Group Strategy

IDB group is composed of ICD, ICIEC, IRTI and IDB as the flagship institution. In the year 2002 IDB accepted the strategy of harmonious effort of the group to provide a better service to the members in a more efficient way.

In this context the Bank has fixed its vision, mission and core values.

VISION – The vision of the Bank is to take the leading part in fostering social and economic advancement of the member nations and Muslim communities elsewhere in compliance with Shari’ah.

Mission – The mission of the IDB group are to alleviate poverty, develop human resource, contribute in science and technology, Islamic economics and financial activities and increase cooperation between member countries.

Values – The core values of IDB may be described by the word PRIDE. The letters P, R, I, D, and E are taken from the following words:

  • P for Performance
  • R for Responsiveness
  • I for Integrity
  • D for Dedication and
  • E for Empowerment

Objectives – The IDB group has identified three major objectives of all its activities. These are:

  • Development of financial and industrial institutions
  • Reduction and alleviation of poverty
  • Improvement of cooperation among the members

Priority Sectors - To achieve the objectives IDB concentrates to the following areas:

  • Development of human resource
  • Advancement of agriculture and improvement of food security
  • Develop Infrastructure
  • Increase trade within IDB members
  • Develop private sectors
  • Enhance research and development

Financial resources and skilled manpower are the two major tools for implementing strategic functions effectively. Wise utilization of the two resources in proper location is the key to success.

Activities

Projects

Islamic Development Bank provides funds to member countries for developing infrastructure and agriculture. Such projects include roads, canals, dams, schools and hospitals etc. The projects having impact on socio-economic reality of the concerned member and prioritized by the Government are preferred by the Bank. IDB finances both public and private sector projects and in compliance with Shari’ah the loans are interest free.

The bridge at Gao in Mali and Irrigation canal Khanarc in Azerbaijan are some of the success stories of IDB in project financing.

Scholarship & Special Assistance

As a part of human resource development in member countries and Muslim communities in non-member countries IDB offers three categories of scholarships. These are:

  • Scholarship schemes for Muslim students of non-member countries
  • Masters program in Science & Technology of least developed member nations
  • Merit scholarship for higher education in Science & Technology

Special Assistance program was started in 1978. This program aimed at helping Muslim communities in non-member countries. Developing institutions of education, health and social services for improving the lives of the community keeping its identity is the ultimate goal of the program.

Technical Cooperation Program (TCP)

This program is also a means to develop human resource of the member countries. The implementation process of the program is through the following:

  • Exchange of expert knowledge within member countries and institutions
  • Senior officials’ visit and study tours to enhance knowledge and experience among the members
  • Seminars, workshops and conferences on technical subjects relating socio-economic advancement of the member countries

IDB plays a dual role of financier and coordinator to provide expertise to a needing member from a member already having the expert knowledge.

Islamic Development Bank is working with its visionary goal in mind. Till today it has completed quite a number of successful projects in different countries and those are contributing to improve lives of millions. IDB would continue its strive to alleviate poverty and improve socio-economic structure of its member nations.