IDB
puts Islamic finance on AIIB drawing board
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[May 14, 2015]
By Maja Zuvela
SARAJEVO (Reuters) - The Islamic
Development Bank (IDB) is in discussions with Chinese officials to study
the use of Islamic financing in the planned Asian Infrastructure
Investment Bank (AIIB), the head of the Jeddah-based multilateral lender
told Reuters.
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The move could spur the use of sukuk (Islamic bonds), which have
gained prominence as funding tools for a range of countries in
recent years, and among multilateral lenders to help fund some of
Asia's mounting infrastructure needs.
A potential link-up between IDB and AIIB, which have 20 member
countries in common, would also open a growing pool of capital in
the hands of private-sector Islamic investors across the Middle East
and Southeast Asia.
"Our delegation has visited Chinese counterparts and we expect them
to visit us soon," IDB president Ahmad Mohamed Ali said on the
sidelines of an industry conference.
"We are ready to collaborate with AIIB on this project and also to
help them develop expertise in Islamic financing."
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Most analysts believe the AIIB will have to work with established
institutions for some of its initial investments, as it takes time
to develop its own pipeline of deals.
Developing countries spend about $1 trillion a year on
infrastructure and an additional $1-1.5 trillion will be needed
through 2020 in areas such as water, power and transportation
projects, according to the World Bank.
The asset-backed nature of Islamic finance makes sukuk ideal for
such transactions, but until now the format has been confined to
handling mid-sized deals with shorter tenors.
The IDB wants to change this, with the multilateral lender now
planning to set up a dedicated infrastructure unit.
"Our research unit is currently exploring ways on how to pursue
these plans and formation of a special unit to deal with
infrastructure projects is on the table," Ali said.
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Even the Asian Development Bank, seen as a rival to the AIIB, is
stepping up efforts to assist its member countries to use sukuk for
infrastructure financing.
The IDB is also coordinating with Turkey, Indonesia and Saudi Arabia
to support efforts by the G20 group of nations which has included
infrastructure sukuk in its annual agenda.
The AIIB has yet to start operating, but it is designed to cater to
Asia's growing appetite for infrastructure, with many of its
projects housed in IDB member countries.
Besides the three Muslim-majority G20 members, the AIIB counts other
Muslim countries such as Kazakhstan, Pakistan, Qatar, Jordan and
Oman as founding members. All have issued or have plans to issue
sovereign sukuk.
(Writing and additional reporting by Bernardo Vizcaino; Editing by
Eric Meijer)
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