Islamic Development Bank
The Islamic Development Bank (IsDB) is a multilateral development financing institution established in 1975 and headquartered in Jeddah, Saudi Arabia, comprising 57 member countries primarily from the Organisation of Islamic Cooperation.[1][2] It operates under Sharia principles, prohibiting riba (interest) and emphasizing profit-and-loss sharing, murabaha (cost-plus financing), and ijara (leasing) to support socioeconomic projects in infrastructure, agriculture, education, and health across member states and Muslim communities worldwide.[1] The IsDB Group, which includes affiliates like the International Islamic Trade Finance Corporation, approved a record US$13.2 billion in financing in 2024, marking a 12.3% increase from 2023 and focusing on poverty alleviation, sustainable development, and crisis response in regions including Africa, Asia, and the Middle East.[3][4] Its total project assets stood at approximately ID 17.39 billion as of late 2024, representing over half of its balance sheet and underscoring its role in channeling funds from oil-rich Gulf states to less developed members.[5] While the bank positions itself as a non-political entity advancing collective Islamic solidarity, empirical analyses of its aid allocation reveal patterns influenced by donor countries' strategic interests, such as Saudi Arabia's emphasis on religious affinity and geopolitical alignment rather than solely developmental criteria.[6][7] This has drawn criticism for potentially mirroring self-interested lending observed in other regional institutions, though the IsDB maintains adherence to its charter's focus on equitable growth.[7]
History
Founding and Establishment (1973–1975)
The Islamic Development Bank (IsDB) originated from discussions among Muslim countries' finance ministers amid the 1973 oil boom, which provided petrodollar surpluses for development financing in line with Islamic principles prohibiting riba (interest). In December 1973 (Dhul Qa'dah 1393H), the Conference of Finance Ministers of Muslim Countries convened in Jeddah, Saudi Arabia, issuing a Declaration of Intent to establish an international financial institution dedicated to fostering economic development and social progress in member states through Sharia-compliant mechanisms.[8] This initiative was tied to the newly formed Organisation of Islamic Cooperation (OIC), with the bank's charter emphasizing collective self-reliance among Muslim nations.[9] The Articles of Agreement were drafted and signed by representatives from 22 founding member countries on August 4, 1974, in Jeddah, outlining the bank's purpose as promoting Islamic solidarity via interest-free loans, equity participation, and technical assistance.[10] These members included key OIC states such as Saudi Arabia (largest subscriber with 22.87% of initial capital), Libya, and Iran, with subscribed capital totaling 2 billion Islamic Dinars (equivalent to Special Drawing Rights).[11] The bank's headquarters were designated in Jeddah, reflecting Saudi Arabia's pivotal role in hosting the OIC's secretariat and providing initial funding. Ratification progressed through 1974, with the required threshold of subscriptions from founding members achieved by mid-1975. The Inaugural Meeting of the Board of Governors occurred in July 1975 (Rajab 1395H), electing Ahmed Mohammed Mansur as the first president and formally activating the institution.[8] Operations commenced on October 20, 1975 (15 Shawwal 1395H), with an initial staff of 78 focused on project financing and capacity building in poorer member countries.[12] This establishment marked the first multilateral development bank explicitly structured around Islamic financial principles, distinguishing it from conventional institutions like the World Bank by prioritizing profit-sharing and leasing over debt-based lending.[9]Early Operations and Growth (1976–1999)
The Islamic Development Bank (IDB) commenced operations on October 20, 1975, following its establishment earlier that year with 22 founding member countries and an initial authorized capital of ID 2 billion (approximately US$770 million at the time). Under its first president, Dr. Ahmad Mohamed Ali, who served from 1975 to 1993, the Bank approved its inaugural financing for the Song Loulou hydropower project in Cameroon in 1976, co-financed with the European Investment Bank, marking the start of project-based lending focused on infrastructure in member states. Initial financing modes were limited to ordinary loans and equity participation, adhering to Sharia principles prohibiting interest (riba).[10][13][14] By the late 1970s, the IDB expanded its scope with the launch of the Special Assistance Programme in 1979 to support Muslim communities in non-member countries, eventually funding 1,869 operations across 84 countries by 1999 with a total budget of US$908 million. Membership grew steadily, reaching over 50 countries by the mid-1990s through admissions from Africa, Asia, and beyond, reflecting the Bank's aim to foster economic cooperation among Organization of Islamic Cooperation (OIC) members. Financing approvals emphasized sectors like agriculture, energy, transportation, education, and health; for instance, the Scholarship Programme for Muslim Communities, initiated in 1983, contributed to cumulative education investments exceeding US$6 billion by 1999. New Sharia-compliant instruments were introduced, including Ijara (leasing) in 1978 and installment sale in 1985, broadening options beyond traditional loans.[13][15][10] The 1980s and 1990s saw institutional growth, including the establishment of the Islamic Research and Training Institute (IRTI) in 1981 to promote Islamic economics and banking knowledge, and the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) in 1994 for risk mitigation. By 1999, financing modes had expanded to 10, incorporating Istisna’a (manufacturing contracts) introduced in 1996, enabling support for complex projects like manufacturing and construction. The IDB also formed the Islamic Corporation for the Development of the Private Sector (ICD) in 1999 to target private enterprise, signaling a shift toward diversified growth. Cumulative approvals rose significantly, with disbursements focusing on least developed member countries, though exact annual figures for the period reflect steady expansion from initial modest commitments to billions in total financing by century's end, prioritizing self-sustaining development over concessional aid.[10][15][13]Reforms and Expansion (2000–2015)
The Islamic Development Bank pursued internal reforms to modernize its operations during the early 2000s, transitioning under the presidency of Dr. Abdel-Latif Yousef Al-Hamad from 2000 to 2005, followed by Dr. Muhammad Sulaiman Al-Jasser starting in 2005. These efforts included the implementation of enterprise resource planning systems, such as SAP, by 1433H (2012), to enhance business processes and efficiency.[11] The Bank also adopted strategic frameworks, including the 10-Year Framework and Strategies for the development of Islamic financial services industry, initiated around 2004 to promote comprehensive human development through Sharia-compliant instruments.[16] Capital resources expanded significantly to support increased lending capacity. The third general capital increase, approved in 2005, raised subscribed capital levels, followed by further augmentations that culminated in the fifth general capital increase at the 38th Annual Meeting in 2013, elevating authorized capital to ID 100 billion and subscribed capital accordingly. This growth enabled higher net approvals for development projects, with ordinary capital resources financing rising steadily, reflecting commitments to poverty alleviation and infrastructure in member countries.[17] Membership grew from approximately 40 countries at the turn of the millennium to 56 by 2015, incorporating diverse economies across Africa, Asia, and beyond, which necessitated the establishment of additional regional offices in locations such as Rabat, Kuala Lumpur, and Almaty to manage expanded outreach.[18][19] This expansion diversified the Bank's shareholder base and voting power, with major contributors like Saudi Arabia maintaining significant influence while accommodating new entrants. Operations shifted toward greater emphasis on private sector engagement and trade finance, aligning with broader goals of economic cooperation among Organization of Islamic Cooperation members.[11]Recent Developments and Strategy (2016–2025)
In 2015, the Islamic Development Bank (IsDB) adopted its 10-Year Strategy (10YS) for the period 2016–2025, aiming to enhance development effectiveness in member countries through alignment with global agendas such as the Sustainable Development Goals (SDGs). The strategy emphasized three core strategic objectives: fostering inclusiveness to promote equitable economic and social development; advancing connectivity as a catalyst for South-South cooperation and regional integration; and driving growth in the Islamic finance sector to position the IsDB as a leading authority in Sharia-compliant financing. These objectives were supported by five operational pillars—inclusive social development, private sector development, Islamic finance sector development, economic and social infrastructure, and cooperation among member countries—alongside a cross-cutting focus on capacity development embedded across all initiatives.[20][21] The 10YS guided a range of targeted reforms and expansions, including the establishment of 11 regional hubs to decentralize operations and improve responsiveness to local needs, with a goal of achieving a 25% disbursement ratio for efficiency. Key initiatives encompassed US$644 million in approvals for climate-related projects to address environmental vulnerabilities, the creation of a US$500 million Science, Technology, and Innovation (STI) Fund to tackle development challenges through research and application, and support for awqaf (endowment) projects totaling US$74.2 million across seven initiatives to develop mixed-use infrastructure. Private sector engagement expanded via equity investments in 37 Islamic financial institutions spanning 23 countries, while microfinance efforts in five countries generated 17,028 jobs and benefited 2,866 individuals, prioritizing financial inclusion in underserved areas. The strategy also prioritized partnerships, targeting US$8 billion in co-financing to leverage resources for infrastructure and social sectors.[20][20] In response to global disruptions, particularly the COVID-19 pandemic, the IsDB reviewed and realigned the 10YS in subsequent years to incorporate resilience-building measures, such as enhanced focus on health emergencies, economic recovery, and poverty alleviation in fragile member states. Annual financing approvals surged, with over US$1.32 billion committed in early 2025 alone for projects emphasizing climate resilience, job creation, and essential services across member countries, reflecting cumulative growth in disbursements throughout the decade. Innovations in Sharia-compliant instruments, including green sukuk issuances—such as a record €500 million raised in October 2025—supported sustainable infrastructure and underscored the strategy's emphasis on Islamic finance expansion. By 2024, initiatives like the Islamic Finance Sector Transformation program advanced sustainable financing models, while community programs such as Tadamon 2.0 extended empowerment efforts to vulnerable populations.[22][23][24] The 10YS concluded with a strategic transition, as the IsDB unveiled a new 10-Year Strategic Framework for 2026–2035 in May 2025, themed "Originality and Solidarity for Intergenerational Prosperity," building on lessons from the prior decade to prioritize national development priorities, Islamic principles in financing, and intergenerational equity amid ongoing global challenges. This shift marked the culmination of reforms that strengthened the IsDB's role in mobilizing resources—totaling billions in approvals over the period—for infrastructure, human capital, and regional connectivity, while maintaining Sharia compliance as a foundational constraint on operations.[25][26][23]Mandate and Guiding Principles
Core Objectives
The primary objective of the Islamic Development Bank (IsDB), as defined in Article 1 of its Articles of Agreement signed on 15 December 1973 and effective from 20 July 1975, is to foster economic development and social progress among its member countries and Muslim communities, both individually and jointly, in accordance with Sharia principles that prohibit riba (interest) and emphasize ethical financing.[27] This purpose prioritizes sustainable growth in productive and service sectors, targeting 57 member states primarily from the Organisation of Islamic Cooperation (OIC) as of 2023, with subscribed capital reaching 71.19 billion Islamic Development Bank Units (IDUs, equivalent to special drawing rights) by 2022.[2] The Bank's operations exclude non-compliant activities, focusing instead on equity participation, profit-sharing, and lease-based models to align with Islamic jurisprudence while addressing development needs like infrastructure, agriculture, and human capital in low-income regions.[28] To implement this objective, Article 2 of the Articles of Agreement outlines specific functions, including direct equity investments and loans to public and private enterprises, financial assistance to members for broader economic and social projects, and establishment of special funds such as the Islamic Solidarity Fund for Development, which approved $101.5 million in grants in 2022 for poverty alleviation and refugee support.[27] Additional roles encompass technical assistance and training programs, with the Bank disbursing over 1,200 scholarships annually through initiatives like the IsDB Scholarship Programme, and research efforts via the IsDB Institute to advance knowledge in Islamic economics and finance.[28] These functions emphasize intra-OIC cooperation, such as promoting trade finance that mobilized $2.5 billion in 2023 approvals, while extending support to non-member Muslim communities in 24 countries through partnerships.[29] The Bank's objectives have evolved through strategic realignments, such as the 2023-2025 framework prioritizing eight strategic pillars including partnerships and climate action, yet remain anchored to Sharia-compliant mechanisms that have financed over 4,000 projects totaling $20 billion in commitments by 2023, with a focus on measurable impacts like reducing poverty rates in sub-Saharan African members from 41% in 2015 to 35% in 2022 per aligned UN data.[30] This approach underscores causal linkages between ethical finance, institutional capacity-building, and long-term development outcomes, though empirical evaluations highlight challenges in scalability due to member countries' varying governance standards and reliance on oil-exporting donors for 60% of subscriptions.[27][8]Sharia-Compliant Financing Framework
The Sharia-compliant financing framework of the Islamic Development Bank (IsDB) mandates adherence to core Islamic jurisprudential principles derived from the Quran and Sunnah, including the prohibition of riba (interest or usury), gharar (excessive uncertainty in contracts), and maysir (speculative gambling), as well as avoidance of financing activities deemed haram (forbidden), such as alcohol production, gambling operations, pork-related businesses, adult entertainment, and conventional weapons manufacturing.[31] This framework ensures all financial instruments promote risk-sharing, asset-backing, and ethical economic development among member countries, aligning with the Bank's charter established in 1974.[32] Oversight is provided by the IsDB Group Sharia Board, an independent body of scholars that reviews and approves financing structures, conducts annual Sharia audits, and issues fatwas to maintain compliance across the Group's operations.[33] Key financing modes employed by the IsDB include ijara (leasing), which represented 30% of total project financing as of the latest operational overview, involving the Bank acquiring assets and leasing them to beneficiaries for fixed rentals with eventual ownership transfer options.[32] Installment sales (murabaha), accounting for approximately 15% via structured loans, entail the Bank purchasing goods or services at cost and reselling them to clients at a disclosed markup on deferred payment terms, ensuring transparency to avoid gharar.[32] Equity-based modes like musharaka (partnership) and mudaraba (profit-sharing trust), comprising 8% of financing, facilitate joint ventures where risks and profits are shared proportionally, promoting entrepreneurial development without guaranteed returns.[32] Additional modes include istisna'a contracts (16% of financing), which support manufacturing, construction, or infrastructure projects by allowing parallel financing for bespoke assets, provided they are technically feasible and economically viable for member priorities.[32][34] These instruments typically feature maturities of 5-10 years for medium- to long-term projects and 6-24 months for short-term trade facilitation, with the Sharia Board ensuring structures align with standards from bodies like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), to which the IsDB contributes.[32] Non-compliance risks, such as hidden riba equivalents or unethical sector exposure, are mitigated through pre-approval reviews and post-disbursement monitoring, as evidenced in annual Sharia audit reports.[33]Membership and Governance
Member Countries and Eligibility
The Islamic Development Bank (IsDB) comprises 57 member countries, each required to be a member of the Organisation of Islamic Cooperation (OIC).[35] This eligibility criterion ensures alignment with the institution's focus on fostering economic development and cooperation among OIC nations, which collectively represent a significant portion of the global Muslim population across Africa, Asia, and beyond.[35] As of October 2025, no changes to the membership count have been reported, maintaining the roster established over decades of expansion.[35] Prospective members must meet specific conditions to join: adherence to OIC membership, payment of the initial installment of the minimum capital subscription, and acceptance of terms set by the IsDB Board of Governors.[36] These requirements underpin the Bank's capital structure, with subscriptions determining voting power; for instance, Saudi Arabia holds the largest share at 22.5%, followed by Libya at 9.03% and Indonesia at 7.94%.[35] Non-compliance with subscription obligations can affect participation, though all current members have fulfilled basic entry thresholds.[35] Membership enables access to IsDB financing, technical assistance, and project funding, prioritized for infrastructure, poverty alleviation, and Sharia-compliant initiatives in developing economies.[35] While the Bank does not formally categorize members as regional or non-regional in its primary documentation, practical operations often emphasize support for OIC countries in Africa and Asia, reflecting their developmental needs.[35]Capital Subscriptions and Voting Power
The capital subscriptions of the Islamic Development Bank (IsDB) form the core of its ordinary capital resources, with member countries required to subscribe to a minimum of 200 shares as stipulated in the Bank's Articles of Agreement.[37] Subscriptions are paid in Islamic Dinars (ID), with the total subscribed capital reaching ID 58.7 billion as of December 31, 2024.[38] These subscriptions are allocated through negotiations reflecting members' economic capacities and commitments, distinguishing between regional members (primarily from the Organisation of Islamic Cooperation in Africa and Asia) and non-regional members, though exact allocation formulas are not publicly detailed beyond aggregate figures. Major shareholders include Saudi Arabia as the largest contributor, followed by Libya and Indonesia, which became the third-largest in 2023 after increasing its stake.[39] Voting power within the IsDB's Board of Governors is apportioned to ensure representation proportional to financial commitment while providing a baseline equity. Each of the 57 member countries receives 500 basic votes regardless of subscription size, plus one additional vote for each subscribed share, mirroring structures in other multilateral development banks to balance small and large contributors.[3] This results in total voting power dominated by top subscribers; for instance, Saudi Arabia's substantial holding grants it decisive influence in decisions requiring a majority of votes present, such as approvals needing simple or absolute majorities under the Articles.[37] Specific examples include Pakistan's subscription of ID 1.4 billion, equating to 2.43% of total capital and corresponding voting weight beyond basics.[35] Algeria holds a similar stake at ID 1.4 billion (2.43%), illustrating parity among mid-tier members.[35] The structure incentivizes higher subscriptions for greater influence, with unpaid portions callable in emergencies but not affecting immediate voting. Annual reports detail voting power statements, confirming that aggregate votes align with subscribed shares plus basics, ensuring governance reflects capital backing without sole reliance on share votes that could marginalize smaller members. Reforms, including capital increases, have periodically adjusted share availability to sustain this balance amid membership growth from 22 founding countries in 1975 to 57 today.[40]Organizational Structure
Key Institutions and Bodies
The Board of Governors (BoG) constitutes the highest decision-making authority of the Islamic Development Bank, comprising one Governor and one Alternate Governor appointed by each of its 57 member countries, typically finance ministers or equivalent officials.[41] The BoG approves the Bank's capital subscriptions, elects the President and Executive Directors, and delegates operational powers to the Board of Executive Directors while retaining oversight on major policy matters, such as amendments to the Articles of Agreement.[42] The Board of Executive Directors (BED) manages the Bank's day-to-day operations, approving financing proposals, budgets, and strategic plans under the BoG's delegated authority.[43] Composed of 14 Executive Directors representing member countries or groups thereof, the BED meets regularly—such as its 361st session in July 2025—to deliberate on approvals exceeding US$277 million in financing for infrastructure and sustainable development.[44] The President, currently H.E. Dr. Muhammad Sulaiman Al Jasser since July 2021 for a five-year term, leads the Bank's executive management, chairs the BED, and represents the institution internationally, including at forums like the 2025 World Bank-IMF Annual Meetings.[45] [46] Supported by Vice Presidents and Senior Management, including the Vice President for Operations appointed in December 2024, this leadership implements Sharia-compliant financing and oversees regional hubs in countries like Morocco and Malaysia.[47] The IsDB Group encompasses five specialized entities aligned with the Bank's mandate for economic development and trade facilitation in member states:- Islamic Development Bank Institute (IsDBI): Focuses on capacity building, research, and training in Islamic economics and finance.
- Islamic Corporation for the Development of the Private Sector (ICD): Provides equity financing, loans, and advisory services to private sector enterprises, emphasizing entrepreneurship and export growth.[48]
- International Islamic Trade Finance Corporation (ITFC): Established in 2008, it supports intra- and extra-trade financing for member countries, having disbursed over US$80 billion since inception through Sharia-compliant instruments like murabaha.
- Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC): Offers export credit insurance and investment guarantees to mitigate risks, serving as the Group's primary risk management arm.[49]