Bank in poverty plea
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Emerging Markets

Bank in poverty plea

Islamic Development Bank president calls for renewed action as Mahathir warns on income gap

The Islamic Development Bank will ask member states to dig deeper this week in Dakar, as the institution looks to bring its landmark poverty fund closer to its $10 billion target. IDB group president Ahmad Mohamed Ali’s appeal comes as former Malaysian prime minister and IDB adviser Mahathir Mohamed has raised the alarm about rising income disparities across the Muslim world.

In an exclusive interview, Ali told Emerging Markets that $1.4 billion had been committed so far to the Poverty Reduction Fund (PRF), but that much more was needed for the new instrument to meet its aim of helping the poorest IDB members – who include 28 of the world’s 32 least-developed countries – to reach the Millennium Development Goals.

Ali noted that the $10 billion figure was an ideal target. “We do not know when we will reach this figure, but we are hopeful, because in the Bank’s history, member countries have always shown their support, and we believe this will continue,” he said.

The biggest commitments to the fund have come from Saudi Arabia, which has promised to contribute $1 billion, and Kuwait, with $300 million. The IDB will look for more from these donors and other wealthy Gulf states. The fund was first announced in 2005 by the Organization of Islamic Conference (OIC) but is only now ready for launch.

Ali said he expects “all member countries to participate, even the poorest ones – whatever amount is appropriate.” So far 22 member countries have announced contributions amounting to some $1.4 billion – suggesting that most commitments are very small.

Ali told Emerging Markets the Dakar meeting would also help the IDB focus on “enhancing African development”. Many members are also looking for the Bank to hammer out a more robust strategy for taking a lead in shaping the Islamic finance industry.

In an exclusive interview with Emerging Markets, Mahathir said that the Muslim world is falling woefully behind in wealth distribution as the gap grows between rich and poor countries.

“The Muslim world has never been as rich as it is now. Unfortunately, the wealth is not evenly distributed, and there seems to be no desire to distribute the wealth in a very rational way,” he told Emerging Markets shortly before being admitted to hospital earlier this month. “I’m not thinking in terms of charity, in terms of giving money to the poor, but if you invest you are going to create wealth.”

Mahathir urged rich Muslim nations to focus on infrastructure investment among a range of options to help combat regional disparities. “If the rich Islamic countries were to invest in infrastructure projects in the poor countries, just the investment would stimulate the economy. Once you have the infrastructure, it is going to be a catalyst for more economic growth,” he said.

The elder statesman called on the IDB to set up investment in infrastructure. He said: “Apart from lending in order to gain a return in the short term, we should think in terms of investments.” He said the Bank should “set up a construction company”, which would take equity stakes in projects.

For further discussion on Islamic Development Bank strategy, see "A matter of focus".

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