Islamic Finance and Development Financial Institutions (DFIs)

Abstract

Development financial institutions (DFIs), eager to mobilise private sector financing for their activities, seem to increasingly look towards Islamic investors, although currently it is almost exclusively the Islamic Development Bank Group (IsDB) that is active in this realm. IsDB Group attracts sharia-compliant institutions and high net worth individuals through issuing sukuk (“Islamic bonds” or financial certificates) and other sharia-compliant products, and offer competitive returns such as murabaha . The investments of the IsDB Group are mostly in credit financing (equity participation was made use of in one fifth of the projects), with over one fourth of funds directed towards infrastructure projects. DFIs’ interest in Islamic finance, while gaining strength, is still rather limited, with the World Bank Group, European Bank for Reconstruction and Development (EBRD), African Development Bank (AfDB), and Asian Development Bank (ADB) among the few actively working towards attracting sharia-compliant investors e.g. by virtue of issuing sukuk. Many DFIs have entered into partnerships with the IsDB Group.