IDB puts Islamic finance on AIIB drawing board

Wed May 13, 2015 11:30pm EDT
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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.

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."

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.   Continued...

President of the Islamic Development Bank Ahmad Mohamed Ali addresses the World Islamic Economic Forum in London October 29, 2013. REUTERS/Luke MacGregor