icd-idb.org - Islamic corporation for the Development of the private sector

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.

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.