AMD Funds' financing is denominated in U.S. Dollars i.e. beneficiaries indebtedness to the Funds is denominated in U.S. Dollars. Disbursements and repayments can, however, be made in other convertible currencies.
Mark-up The mark-up on the financing is based on applicable LIBOR plus a spread. The spread is negotiable and varies according to the duration of financing, country risk, and credit-worthiness of the beneficiary. Absolute mark-ups are also charged (without reference to LIBOR) for fixed rate financing e.g. Istisnaa. Again, the mark-up is negotiable and varies depending on the particulars of each project.
Security Acceptable securities include the following:
Bank guarantee from first class banks.
Credit insurance cover from acceptable credit insurance companies.
Other e.g. clean financing supported by other securities such as assignment of receivables through the mechanism of escrow account in case of large corporates with financial position.
Modes of Finance - Defined
The AMD employs the following Islamic modes of financing, provided that related projects, equipment, goods and commodities financed are permissible by Islamic Law (Shari'ah).
Installment Sale A mode of financing whereby IDB purchases machinery and equipment, then sells them to the beneficiary at higher price, repayment being in installments. The ownership of the asset is transferred to the purchaser on delivery.
Ijara Muntahia Bitamleek A lease that concludes with the legal title in leased asset passing to lessee.
Istisna'a A medium-term mode of financing. It is a contract for manufacturing (or construction) whereby the manufacturer (sellers) agrees to provide the buyer with goods identified by description after they have been manufactured/ constructed in conformity with that description within a pre-determined time-frame and price.
Musharaka Mutanaqisa (or Diminishing /Declining Participation) An "equity sharing" Islamic financing technique used for financing projects. It uses different types of profit and loss sharing partnerships. The partners (entrepreneurs, bankers, etc.) share both the capital and the management of a project while the profits are distributed between them according to pre-determined ratios based on their equity participation.
Equity A mode of financing used by the IDB whereby the IDB whereby the Bank participates in the share capital of enterprises on a long-term basis.
Mudaraba A Form of partnership where one party provides the funds and the other provides the expertise and management. Any profits accruing are shared between the two parties on a pre-agreed ratio, while the capital loss is borne by fund provider.
Modes of Finance -Tenures
Bai AI-Ajal. (Installment sale) - Maximum period of 8 years.
ljara (Leasing.) - Maximum financing period is between 5 - 7 years and can, on exceptional basis, reach 15 years including a gestation period of up to 3 years. The gestation period equals to the period required to purchase, erect, test and commence operations of the underlying asset.
Istisna'a (financing of goods to be manufactured). Maximum financing period is as follows:
Pre-shipment Financing: For up to 3 years including 1 year gestation.
Project Financing: For up to 8 years including 3 year gestation.