The Islamic Development Bank (1DB) was established as an international financial institution in December 1973 and formally commenced operations on 20th October 1975.

The purpose of the Bank is to foster economic development and social progress of member countries and Muslim communities in accordance with the principles of Shari' ah. Its main functions include participation in equity capital and financing of productive projects. It also provides financial assistance to member countries in other forms for their economic and social development.

In pursuit of the Bank's policy for promoting economic development, and against the background of prevailing environment at the time of establishment of the Bank, bulk of its resources were used for financing the public sector. The trend of globalization, the integration of international trading and financial systems and the dwindling of foreign funding for government sponsored projects has resulted in an unprecedented availability of opportunities for the growth and development of the private sector in the member countries of the Bank. This set the stage for the Bank to reorients its strategy towards the private sector.

This tide of globalization has led to three major phenomenon: the liberalization of economies, the privatization of government owned enterprises and greater involvement of the private sector in infrastructure projects. As a result, many economic functions, which previously absorbed large amounts of public financial resources, are now being undertaken by the private sector. In addition, the trend of transferring public sector infrastructure finance to the private sector has created an urgent demand for private sector financing which is most suited to Islamic modes of financing. In order for IDB to capitalize on the momentum being generated, it had become imperative that it enters into this arena with a broad range of Shari'ah-compatible products, which would meet contemporary private sector financing requirements.

It is also believed that the existing network of Islamic banks/financial institutions is not geared to meet the investment financing requirements of the private sector in IDB member countries. This established a niche for Shari'ah-compatible, quasi-investment banking organization which could fulfill this demand.

Having recognized the need for meeting the demands of the private sector, IDB undertook a reevaluation of its private sector financing strategy, and as a result, the Bank's Board of Executive Directors in its 184th meeting held in Jeddah on 24-25/12/1419H (10-11 April 1999), vide resolution number BED/26/12/419(184))/180, approved, in principle, the creation of an independent entity to deal with the private sector in IDB member countries. The final proposal for the establishment of the Islamic Corporation for the Development of the Private Sector (ICD) was approved by the BED, vide resolution number BED/25/5/420(187)/56, during its 187th meeting held on 25/5/1420H (5th September 1999).

The new institution, to be called the Islamic Corporation for the Development of the Private Sector (ICD), will complement the role being played by IDB in supporting economic development by helping to strengthen the private sector in its member countries.