To speed up the development of infrastructure projects, highly needed in Asian countries, the Asian Development Bank (ADB) and the Islamic Development Bank (IDB) have agreed to set up Asia's first major multi-country Islamic infrastructure fund.
The Islamic infrastructure fund is expected to reach US$500 million, and will contribute sharia-compliant equity investments in 12 Asian countries - all of which are borrowing members of both development banks, ADB and IDB said in a joint statement Wednesday.
The 12 countries are Afghanistan, Azerbaijan, Bangladesh, Indonesia, Kazakhstan, Kyrgyz Republic, Malaysia, Maldives, Pakistan, Tajikistan, Turkmenistan and Uzbekistan.
Most of the countries are in need of additional spending on infrastructure to accelerate economic growth, but the state of their infrastructure is frequently below that of the Asian average, according to the two development banks.
"In Indonesia, only 39 percent of urban dwellers have access to piped water, only 9.5 percent of roads in Afghanistan are paved and only 42 percent of Bangladesh's population has access to electricity," said Robert van Zwieten, the director of ADB's capital markets and financial sectors division.
"Without added investment to change that, economic growth and poverty reduction will be held back," he added.
The Islamic infrastructure fund is ADB's first sharia-compliant fund, which is structured to comply with Islamic law, which bars investment in interest-bearing securities or in forbidden activities, such as gambling.
"With increasing demand for Islamic finance by both investors and clients, we expect the fund to attract capital not only from the Islamic world, notably the Middle Eastern region, but also from a wide range of institutional investors all over the world," said Walid Abdelwahab, the director of IDB's country operations department for Asia.
"Despite the tightening liquidity around the world, there is still a substantial amount of wealth and many investors are increasingly interested in putting their money to work in a way that complies with their faith," he said.
It is estimated that the sovereign wealth funds in the Gulf Cooperation Council (GCC) countries amounted to $1.2 trillion at the end of 2008, according to the statement, (despite the global downturn).
The two development banks announced the plan during the 34th annual meeting of IDB's board of governors, currently underway in Ashgabat, Turkmenistan.