Resource Mobilization Strategy

Like other Multilateral Development Banks (MDBs), IDB uses its equity (paid-in capital and reserves) as well as resources mobilized from the financial markets to fund its operations. As at the end of the financial year 1431H, corresponding to 6 December, 2010, the equity of the Bank amounted to ID 6.44 billion (equal to US$ 9.91 billion).

Apart from equity as its main funding source, IDB via Treasury Department especially has in place a Resource Mobilization Strategy, under which funds are mobilized from both capital market for its medium and long term funding requirement and Islamic money market for its short term. From the capital market, IDB issues Sukuk (Islamic Bond) on a Public and Private Placement basis in multi currencies. Nevertheless, USD is the main currency of issuance. From the Islamic money market, IDB mobilizes funds on a short and medium term basis through commodity murabaha placements. 

IDB pioneered the Shariah compatible way of mobilizing funds from the capital market by issuing Sukuk (Islamic bonds), which are tradable in the secondary markets. The first issuance of international Sukuk by IDB took place in 2003, which was a fixed rate 5-year offering and it raised US$ 400 million. In 2005, IDB setup a Medium Term Note (MTN) Program for US$ 1.0 billion to facilitate future regular issuances. The MTN Program was admitted to trading on the London Stock Exchange’s regulated market and to the Official List. Under this program, a Sukuk of US$ 500 million was issued in 2005 on a floating rate basis for 5-year maturity.

In 2008, IDB also setup a RM1 billion  MTN Program in Malaysia for issuance of local currency Sukuk and two tranches of RM100 million and RM300 million were issued on a fixed rate basis for 5-year maturity in order to meet financing requirements in Malaysian Ringgit.

In 2009, the MTN Program of US$ 1.0 billion was updated and at the same time upsized to US$ 1.5 billion. Under the enlarged Program, IDB issued a highly successful 5-year international Sukuk amounting to US$ 850 million. The issue was on a fixed rate term basis. Beside the public offering, IDB is also a frequent issuer of Sukuk in the private placement market.  During the year 2009, IDB issued three Sukuk on a Private Placement basis. The first was denominated in Singapore Dollars of SGD 200 million while the second and third issues were made in Saudi Riyal amounting to SAR 1,875 million.
In 2010, the US$ MTN Program was again upsized to US$ 3.5 billion to facilitate more issuance of Sukuk to meet IDB's funding requirement. During the same year, IDB made a public offering of US$ 500 million also on a 5 year maturity at a fixed rate of 1.775% p.a.  In Feb. 2011, IDB issued a GBP60 million floating rate sukuk on a Private Placement basis and thereafter in May 2011 issued another USD750 million through a Public Offering at a fixed rate of 2.35% for 5-year maturity.

IDB will continue to be a frequent issuer of Sukuk in the public and private placement markets. Besides meeting its funding requirements, regular issuance of Sukuk will help increase the liquidity and trading of Islamic securities in the secondary markets as well as promoting Islamic finance practices in the international financial market arena which constitutes one of IDB’s core establishment objectives. This multi pronged objectives would remain and become IDB’s future direction for sukuk issuance.    

Being a “AAA? financial institution accredited by all three major rating agencies in the world and owned by and having operations in 57 member countries from different continents, IDB’s sukuk offers avenue for fixed income investors who are looking for credit quality investment instrument and risk diversification investment profile like central banks and sovereign funds. Furthermore, being listed in London Stock Exchange means IDB sukuk has passed the stringent listing requirements of one of the well established securities governing body in the world.