Background
The
private sector is increasingly seen as the major driving force behind economic
development and progress. As a result, Member Countries of the Islamic
Development Bank have realized the need for fostering an active private sector.
Consequently,
the governments of the IsDB Member Countries have undertaken broad policy
reforms with a view to creating a more favorable environment for the
development of the private sector.
Further, the trend of globalization has led to three major
phenomena: the liberalization of economies, the privatization of
government-owned enterprises and a greater involvement of the private sector in
core economic activities and 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
response to all these economic changes and opportunities, IsDB undertook a
reevaluation of its private sector financing strategy. As a result, it was
decided to create an independent entity with adequate capital base to provide
financing and promote the development of the private sector in IsDB Member
Countries.
IsDB
Board of Governors approved the establishment of the Islamic Corporation for
the Development of the Private Sector (ICD), during its 24th Annual Meeting,
held in Jeddah on 24-25 Rajab 1420H (2-3 November 1999). ICD is an independent
international multilateral financial institution created for the development of
its Member Countries through investment in the private sector and the provision
of financial services to that private-sector entities. The inaugural meeting of
ICD's General Assembly was held on 6 Rabi II 1421H (8 July 2000).
Based in Jeddah, KSA, the new entity is a fully-fledged international
independent institution. Its authorised capital is US$ 1 billion and its
paid-up capital is US$ 500 million. The structure of the subscibed capital is
as follows: Islamic Development Bank (50%), member Countries (30%), public
financial institutions of member countries (20%).
The
vision of ICD is to be a multilateral financial institution for the promotion
and development of the private sector in IsDB Member Countries, operating
according to the Shari'ah principles.
ICD
envisions to become, in the long run, one of the leaders in the Islamic
financial markets. To achieve this goal, ICD will need to increase its market
presence and build up its brand name over the next decade. Currently, ICD is at
the stage of laying the foundations, and has therefore started to build up its
internal capacities, effective marketing and efficient delivery channels, to
establish its operational procedures and policies, and to carefully select
projects, taking into account risk levels and resources available.

Although
ICD is a new institution, it needs to meet the great expectations of its member
countries by accelerating their respective development through the financing of
the private sector.
So far
ICD's activities have been commensurate with its available resources, technical
capacity, and market conditions.
As such,
ICD is currently focussing on its core-business activity, namely direct
financing of projects or companies. This is done through the provision of
equity and term financing to commercially viable projects/companies for
enterprise restructuring and modernization. In limited cases, ICD will finance
greenfield projects.
Moreover,
ICD normally focuses on projects that will have a significant developmental
impact on the country, but in the early years, special attention is given to
projects in the following sectors: technology, telecommunications, power, water
and sanitation, healthcare, pharmaceutical and industrial sectors. Furthermore,
given the diversity of the economies of ICD member countries and the state of
their private sector, it will be very difficult for ICD to reach private-sector
companies in the same way across all countries.
In order
to keep a diversified portfolio and operate in a cost-efficient and effective
manner, ICD will develop intermediary investment vehicles such as leasing
companies and investment funds to reach the private sector in co-operation with
similar multilateral and national financial institutions.
Finally,
ICD has an important role to play when it comes to the development of Islamic
capital markets. By its sheer size, ICD can contribute to creating volume,
liquidity and generate interest in Islamic securities.
In the
immediate future, given the resources and experience of ICD, its main activity
will be to mobilize resources through syndication and co-financing, while in
the longer-term, securitization will be another form of resource mobilization.
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