gateway to islamic finance interview - Institute of Islamic Banking ...
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gateway to islamic finance interview - Institute of Islamic Banking ...

NEWHORIZON Rajab–Ramadan 1429


Saudi Arabia: gateway to Islamic finance

‘The Land of the Two Holy Mosques’ – Mecca and Medina – is also home to the Islamic

Development Bank, the most prominent multilateral development bank of the Muslim world. But is it

enough to make the country a global hub for Islamic finance? Tanya Andreasyan, NewHorizon’s

editor, takes a look at how the Saudi finance market stands in the world today.

When thinking of the financial institutions

playing the key role in development of

Shari'ah-compliant finance worldwide, one

organisation immediately springs to mind –

the Islamic Development Bank (IDB).

Jeddah is the birthplace of the bank, which

was launched there in 1975 and remains

headquartered there today. This coastal city,

located on the Red Sea shores, is considered

to be the commercial capital of the country

and the wealthiest city in the Middle East

and western Asia. It is also the principal

gateway to Mecca, Islam’s holiest site – the

destination of millions of Muslims on their

Hajj and Umrah pilgrimages. In similar

fashion to Jeddah being a gateway to the

historic, cultural and the religious aspects of

Islam for its followers from all over the

world, IDB opens doors to Islamic finance

on a global scale.

The bank’s main function is to facilitate the

economic and social progress of Muslim

member states (currently 56 states), as well

as Muslim communities in other countries in

accordance with the principles of Shari’ah.

Saudi Arabia is one of the major

shareholders of the bank (on the basis of

paid-up capital), with a 27.9 per cent stake.

It is followed by Libya (11.2 per cent), Iran

(9.8 per cent), Turkey (8.8 per cent) and the

UAE (7.9 per cent). The rest of the shares are

dispersed among other nations, including

Indonesia, Pakistan, Kuwait and Egypt.

The bank offers various forms of financial,

technical and educational assistance,

accumulating an outstanding track record of

successful projects. Last year alone,

NewHorizon continuously reported on the

IDB’s involvement in improving life

standards in its member countries. The bank

launched a $10 billion Poverty Alleviation

Fund to combat poverty, promote general

and health education and empower women

(NewHorizon, January–March 2007 issue).

Saudi Arabia became the main contributor

pledging $1 billion to the fund.

In another recent development, the bank

has approved over $530 million for various

development projects for Muslim

communities in Slovenia, Kenya, India,

Union of the Comoros, Tanzania,

Macedonia, Thailand and the UK. To ease

the current food crisis, the IDB has

allocated $1.5 billion in low cost loans to

those Muslim countries worst affected

(for more detail, see the ‘News’ section of

this issue, p5).

On the Islamic finance front, the IDB has been

vigorously investing in Shari’ah-compliant

financial institutions, and also assisting with

research and training. Among recent examples

are Kyrgyzstan, where the IDB helped to

launch the first Islamic bank, EcoBank

(NewHorizon, April–June 2007 issue), and

Kazakhstan, where the IDB assisted with

drawing up plans for Islamic securities

(NewHorizon, January–March 2008 issue).

Most recently, the IDB has announced an

initiative to organise an investment conference

in Tatarstan (a predominantly Muslim

republic in Russia), which will be the first

conference held by the IDB in Russia.

All in all, the IDB has contributed over $200

million worth of technical assistance to

around 70 Shari’ah-compliant financial

institutions worldwide, including banks,

finance houses, investment, insurance and

leasing companies.

Major standard-setting bodies of the Islamic

finance industry have also benefited from the

IDB’s initiatives. The bank supported the

launch and further activities of such

heavyweights as the Accounting and Auditing

Organisation for Islamic Financial Institutions

(AAOIFI), the International Islamic Financial

Market (IIFM), the Islamic Financial Services

Board (IFSB); the International Islamic Rating

Agency (IIRA) and the International

Arbitration and Reconciliation Centre for

Islamic Financial Institutions (ARCIFI).

Of course, the IDB is not the only major

contribution of Saudi Arabia in the

development of Islamic finance. Alongside

it, the country hosts the Organisation of the

Islamic Conference (OIC), another major

player in the Islamic world (including

education, science and technology, trade,

commerce, sports, and finance sectors).

Actually, the IDB owes its existence to this

organisation – it was the first conference of

Finance Ministers of the OIC that founded

the IDB. Furthermore, the basic condition

for the membership in the IDB is the

membership in the OIC.

Established over three decades ago, in 1971,

the OIC nowadays comprises 57 Islamic

member states and has a permanent

delegation to the United Nations. It has its

own Parliamentary Union (dubbed

PUOICM – Parliamentary Union of the OIC

member states), headquartered in Tehran.

In 1977, the International Association of IIBI 23

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