ISFD Annaul Report 1430H_English - Islamic Development Bank

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Islamic Solidarity Fund for Development (ISFD) Annual Report 1430H-2009G

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Table of Contents Letter of Transmittal ____________________________________________________________________ 3 Establishment of ISFD ___________________________________________________________________ 4 ISFD Board of Directors___________________________________________________________________ 6 The ISFD - Facts and Figures _____________________________________________________________ 8 Chairman’s Message ____________________________________________________________________ 10 PART ONE ______________________________________________________________________________ 11 The Burden of Poverty in IDB Member Countries - Poverty in an unequal world - Efforts Made by IDB Members Countries in Fighting Poverty - Challenges of fighting poverty PART TWO _____________________________________________________________________________ ISFD Five - Years Strategy (2008-2012) - The Strategy - ISFD Special Programs

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PART THREE ____________________________________________________________________________ 23 Operations in 1430H - programs/Projects Approvals - Sector Distribution of Approved Projects - Country Distribution - Terms & Conditions of Financing - Cofinancing - Partnerships for VOLIP and Microfinance - Looking Ahead PART FOUR _____________________________________________________________________________ 29 Corporate Aspects - Activities of the ISFD Board of Governors - Activities of the ISFD Board of Directors - ISFD Memership PART FIVE _____________________________________________________________________________ Financial Review - Resources of the FUND - Operations Financing - Income - Management of Liquid Funds

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PART SIX _______________________________________________________________________________ 37 Challenges and Prospects - Limited Resource Base of the ISFD - Enhancing Resource Mobilization Efforts ANNEXES ______________________________________________________________________________ 41 Annex I : ISFD Projects’ Profiles – 1430H (2009) Annex II : Contributions to ISFD Capital AUDITED FINANCIAL STATEMENTS ______________________________________________________ 47

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Islamic Solidarity Fund for Development (ISFD)

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Letter of Transmittal

In The Name of Allah, The Beneficent, The Merciful

The Chairman, ISFD Board of Governors Dear Mr. Chairman, Assalam-O-Alaikum Warahmatullah Wabarakatuh In accordance with the Regulations of the Islamic Solidarity Fund for Development I, on behalf of the Board of Directors, have the honour to submit for the kind attention of the esteemed Board of Governors, the Annual Report on the operations and activities of the Islamic Solidarity Fund for Development in 1430H (2009G).  The Annual Report also includes the audited financial statements of the ISFD as prescribed in Article 18 of the Fund’s Regulations. Please accept, Mr. Chairman, the assurances of my highest consideration.

Dr. Ahmed Mohamad Ali President, IDB Group Chairman of ISFD Board of Directors

Annual Report 1430H -2009G

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Establishment of ISFD The Third Extraordinary Session of the OIC Summit held in Makkah, Saudi Arabia, on 7-8 December, 2005 proclaimed the Makkah Declaration with a view to address poverty alleviation challenges in the OIC member states. The Summit underlined the need for cooperation in the fields of poverty alleviation, elimination of illiteracy, eradication of diseases and epidemics, human development, and the need to mobilize the necessary resources to this end by establishing a special fund within the IDB – the Islamic Solidarity Fund for Development (ISFD). The establishment of the ISFD has, therefore, come about as a direct expression of the desire of the leaders of the OIC member states to strengthen the spirit of brotherhood and Islamic solidarity among the Ummah.

• Establishment of the ISFD: 6 D. Qadah 1426H (8 December 2005) • Launching of the Fund: 12 Jumad-I, 1428H (29 May, 2007) • Legal Status: Special Waqf1 (Trust) Fund within the IDB and has separate accounts and records. • Headquarters: Jeddah, Saudi Arabia

Official Launching of the ISFD Following the completion of all the necessary preparatory activities to bring it to an implementation stage, the ISFD was officially launched during the 32nd Meeting of the IDB Board of Governors (BOG), held on 12-13 Jumad-I, 1428H (29-30 May, 2007) in Dakar, Senegal. The Fund has been established in the form of a Waqf (i.e. Trust), with a principal targeted capital of US$10.0 billion. All IDB member countries were called on to announce financial contributions to the Fund and extend technical and moral support to its operations.

‫ـــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ‬ 1 The concept of Waqf (Trust) implies that only the income which will be made from the investments of the Fund’s resources will be available to finance its operations.

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Islamic Solidarity Fund for Development (ISFD)

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The Third Extraordinary Session of the OIC Summit, Makkah Al Mukarramah, 5-6 Dhul Qadah 1426H (7-8 December 2005) where the decision to establish a Special Fund within the IDB Group was made – the Islamic Solidarity Fund for Development (ISFD).

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ISFD Board of Directors

Dr. Ahmad Mohamed Ali Chairman

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Hon. Ibrahim Mohamed Al-Mofleh

Hon. Ismail Omar Al Dafa

Hon. Bader Abdullah S. Abuaziza

Hon. Dato Junaidi bin Pehin Dato Haji Hashim

Hon. Zeinhom Zahran

Hon. Khamdan H. Tagaimurodov

Islamic Solidarity Fund for Development (ISFD)

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Hon. Hassan Hashem Abdul Hussain Al Haidary

Hon. Yerima Mashoud Amadou

Hon. Nailane Mhadji

Hon. Sibtain Fazal Halim

Hon. Dr. Seyed Hamid Pour Mohammadi

Hon. Dr. Selim Cafer Karatas

Hon. Abdul Aziz Abdullah Al-Zaabi

Hon. Aissa Abdellaoui

Hon. Faisal Abdul Aziz Al-Zamil

Annual Report 1430H -2009G

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The Islamic Solidarity Fund for Development (ISFD)

Highlights

(Figures as at the end of 1430H (2009G) • First ISFD Five-Year Strategy (2008-2012):

Estimated total cost of programs/projects under the strategy is US$13.5 billion, with an envisaged ISFD contribution of US$2.0 billion to this amount, i.e. a targeted leverage of 1:6.

• Operations -

Approvals in 1430H (2009): 22 operations, valued at US$234.414 million in 17 member countries.

-

Cumulative approvals 1429-30H (2008-09G): US$554.8 million for 48 projects..

-

Disbursements: Disbursements are expected to start in 1431H (2010G)

• Resources of the Fund: -

Targeted Initial Capital: US$10.0 billion.

-

Pledges: US$2.629 billion contributed by 37 member countries2 (US$1.629 billion) and IDB (US$1.0 billion). Eleven countries paid their contributions in full, 12 partially, and 14 are yet to commence payments. Eighteen IDB member countries are yet to announce their contributions to the Fund.

-

Paid-in Contributions as at end-1430H (2009G): US$1.061 billion

‫ـــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ‬ 38 member countries at the end of April 2010, with Kazakhistan paying US$1.0 million towards the ISFD Capital.

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Islamic Solidarity Fund for Development (ISFD)

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-

Operating income in 1430H (2009G): US$11.23 million

-

Net income in 1430H (2009G): US$2.991 million

Definition of Poverty The IDB accepts the now established view that poverty is multi-dimensional. It defines poverty as encompassing not only low income and consumption, but also low achievement in education, nutrition, primary health services, water and sanitation, housing, crisis‑coping capacity, insecurity, and all other forms of human development.

Small businesses: an ISFD tool for poverty alleviation.

Annual Report 1430H -2009G

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Chairman’s Message It gives me great pleasure to present the second Annual Report of the ISFD which describes the activities and financial results of the Fund during the year 1430H (2009). The thrust of the IDB Policy on Poverty Reduction, which guides the Fund’s operations, emphasizes the need for the Fund to achieve a distinct role; one that is closer to its member countries, more in harmony with their thinking, more a partnership between brothers, and more effective in its support of poverty reduction. This approach has constituted the basis of the 22 projects and programs which were approved under the umbrella of the Fund in 1430H (2009). These operations were valued at US$234.54 million, bringing the cumulative ISFD approvals since operationalization of the Fund in 1429H (2008G) to US$554.8 million. Central to the achievement of the ISFD mission is the success to raise the US$10.0 billion targeted capital of the Fund. As at the end of 1430H (2009G), US$2.629 billion have been pledged to the Fund, consisting of US$1.629 billion pledged by 37 of the 56 IDB member countries and US$1.0 billion committed by the IDB. Of these contributions, US$1,060.65 million was received by the Fund as at the end of 1430H (2009G), consisting of US$860.65 million paid by member countries and US$200.0 million paid by the IDB. Clearly, this level of contribution falls far short of the targeted capital amount of US$10.0 billion after more than three years of the establishment of the Fund. It is therefore important that member countries make their level best to implement the resolutions of the OIC Summit, 25th COMCEC Session, and the IDB Board of Governors calling on member countries which have announced their commitments to pay their contributions and those which have not yet made commitments to do so, in order that the Fund can mobilise its approved capital of US$10.0 billion. During the year, the Fund’s management continued its consultations with the ISFD Governors and Board of Directors on the technical, financial and operational aspects relating to the ISFD. I take this opportunity to express my gratitude for their ongoing support and guidance. I also take this opportunity to confirm our commitment, as ever, to aim high for better results and I look forward to a successful year for all IDB member countries and the ISFD in 1431H (2010G).

Dr. Ahmed Mohamad Ali President, IDB Group Chairman of the ISFD Board of Directors

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Islamic Solidarity Fund for Development (ISFD)

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PART ONE

Poverty in IDB Member Countries

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PART ONE

The Burden of Poverty in IDB Member Countries 1.1 Poverty in an unequal world The world has deep poverty amid plenty. Of the world’s 6 billion people, 2.8 billion –almost half – live on less than US$2 a day3, and one billion – a fifth – live on less than US$1 a day, with 44 percent living in South Asia. In rich countries less than 1 child in 100 does not reach its fifth birthday, while in the poorest countries as many as a fifth of the children do not. In rich countries less than 5 percent of all the children under five are malnourished, while in poor countries as many as 50 percent suffer from this problem. This situation persists even though human conditions have improved more in the past century than in the rest of history - global wealth, global connections, and technological capabilities have never been greater. Nevertheless, the distribution of these global gains is extraordinarily unequal. The average income in the richest 20 countries is 37 times the average in the poorest 20 - a gap that has doubled in the past 40 years4. Despite their vast collective wealth in IDB member countries, presently it is estimated that 400 million of the world’s one billion people who live on less than US$1 a day, live in these countries. In absolute figures, 5 countries accounted for 250 million of this 400 million (Bangladesh, Indonesia, Nigeria, Pakistan and Sudan). This is a worrisome figure, considering that the population of the IDB member countries constitutes only 22% of the world’s total population.

1.2 Efforts Made by IDB Member Countries in Fighting Poverty Although many IDB member countries have made visible achievements in their fight against poverty, overall progress has been slow. Many countries still face great challenges in addressing issues related to education, health, water and sanitation, gender, employment, and social safety nets. At the current ILO World Employment Report 2004-2005 World Development Report, World Bank, 2000/2001

3 4

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trends, many countries are likely to miss some vital Millennium Development Goals (MDGs) targets to be met by 2015, including those for infant mortality, prevalence of infectious diseases and access to water and sanitation. In fact, some countries are at risk of failing to reach even two-thirds of the targets, and in sub-Saharan Africa the situation is worse as compared to other regions. Overall, Asia region is making much better progress in fighting poverty. However, in terms of absolute numbers, the scale of poverty faced by this region is large. Among IDB member countries, this region includes Indonesia, Pakistan and Bangladesh, three of the world’s seven most populous countries. As a result, although the prevalence of economic and social poverty is often lower than in subSaharan Africa, these three countries together, and sometimes individually, account for much larger absolute numbers of deprived people in the IDB member countries suffering from many attributes of poverty, such as population living in rural areas without access to water and sanitation, number of underweight children, and population living on less than a dollar a day. This region also includes Afghanistan, whose performance in terms of progress towards the MDGs and poverty reduction is as weak. In Africa, despite the constraint of reliable statistics for monitoring and reporting of progress toward poverty reduction and MDGs, there is little doubt that the recent global economic slowdown has had an adverse impact on these economies and presents a new challenge to achieving the MDGs in the region. Nonetheless, reports confirm that progress has been made on some MDGs’ indicators, as primary school enrolment, gender parity, women’s empowerment, and access to improved sanitation and safe water. Sadly, of concern for many African countries is the rising income inequality, and the fact that progress remains uneven across goals and sub-regions. Similarly, progress on the health MDGs remains poor, particularly for child and maternal mortality rates. However, immunization coverage is approaching universality and is thus reducing infant mortality rates significantly in many countries. Reduction in the prevalence of HIV/ AIDS is also being achieved, but not at a rate to reverse the spread of the disease. Also, the incidence and prevalence of tuberculosis is increasing in many countries.

Annual Report 1430H -2009G

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Thus, at halfway point in the path to reach the MDGs, there is an urgent need to make a major, sustained commitment to strengthening health systems in LDMCs and sustainable improvements that benefit across disease areas and health programs. Attention needs to be given to the diseases which are often a symptom of poverty and the disadvantaged people living in remote rural areas, urban poor, or in conflict zones. Control of these diseases will have a direct impact on alleviating poverty for large populations, and could strengthen some components of health systems in Africa and some parts of Asia. It is also important to recognize that the fight against these diseases should be accorded a higher profile in the national public health care priorities as well as increased flexible funding by the international community. 

1.3 Challenges of fighting poverty Skewed distribution of the benefits of growth and impact of inflation: There are a number of key challenges which are faced by the IDB member countries, particularly LDMCs, in addressing poverty. For example, despite the efforts made, there is a growing evidence of widening disparities in social indicators, implying that progress has in many cases by-passed the poor segments of the society.  This may be mainly due to the lack of proper distribution of the benefits of growth which needs to be “pro-poor” to have a discernable impact on poverty. High inflation, especially due to rising commodity prices, is threatening to undermine the progress made in reducing poverty. The sharply increased deficits on the public accounts are also putting a squeeze on the available fiscal space for public spending targeting poverty reduction and attainment of the MDGs. Moreover, the dan­gers of the decelerating world economy and the adverse impact of the global financial and energy crisis on these efforts cannot be ignored. The recent rise in food prices is also putting great pressure on LDMCs and is threatening to reverse the progress made in fighting hunger and malnutrition. However, it also offers a window of opportu­nity to increase the needed expenditure on agri­culture and to encourage the developed countries to remove barriers to an open trading system in agricultural commodities aimed at benefiting the less developed countries.

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Islamic Solidarity Fund for Development (ISFD)

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Climate change and insecurity risks: The challenge of fighting poverty in LDMCs, particularly African countries, is compounded by the grave long-term risk that climate change poses. Extreme drought is increasing as higher temperatures cause a higher rate of evaporation and more drought in some areas of the IDB member countries. Models predict that sea level may rise as much as 59 cm (23 inches) during the 21st Century, threatening coastal communities, wetlands, and coral reefs5. Moreover, warmer temperatures affect human health which also adds to the incidence of poverty, particularly in the LDMCs. Therefore, these countries require additional resources for adapta­tion since they are particularly vulnerable to the effects of climate change and the growing risk of natural disasters. These additional resources will be needed to strengthen the resilience of the poor communities to the effects of natural disasters. Evidence also shows that security and development go hand in hand and stabilizing post-conflict countries to prevent the emergence of new conflicts is essential for avoiding reversing the development gains made over the pat two decades. As a significant proportion of poverty in IDB member countries exists in conflict and post-conflict areas, effective support for peace building and longer-term development should be viewed as key ele­ment of strategies to achieve this goal.  Resource Requirements to fight Poverty: In order to achieve the MDGs and make significant progress in the fight against poverty, perhaps the biggest challenge which faces the IDB member countries is the huge level of the estimated resources which are needed to address this problem. Recent studies by the UN Millennium Project show that a sustained investment of US$110 billion annually over a long period (say, 7-10 years) may effectively tackle poverty in many of its manifestations. Moreover, such investments must be done in an integrated manner that combines agricultural (food) production, affordable and locally available production technologies, infrastructure development, water supply, health care, and access to markets. The UN Project claims that such interventions benefit as high as 90% of the vulnerable, especially women. Other estimates of the financial resources required to implement the MDG-framework range from US$130 billion per year, at least by the year 2010, to US$180 billion a year. On the basis of previous trends of aid flows to developing countries, the IDB member countries account for roughly 35-40 percent of the total aid flows. This works out to US$4572 billion of aid a year, if the above estimates are taken as benchmarks. UN Intergovernmental Panel on Climate Change (IPCC), Fourth Assessment Report on Climate Change, 2007.

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Annual Report 1430H -2009G

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Estimates were also made on the basis of the total investments needed to bring the population living below the poverty line to the US$1 per day. Barring income redistribution, and assuming an incremental capital-output ratio of 4:1, total additional investment of US$250 billion would be needed to attain this target. Under a more ambitious scenario, where all the population below the poverty line will have an additional income of US$1 per day, the corresponding amount of investment would be US$626 billion. To achieve a US$2 per day target, considerably more resources would be required. Given these estimates, it is clear that there is a great need for foreign assistance if IDB LDMCs, and developing countries in general, are to achieve appropriate levels of poverty reduction and meet the MDGs targets. Indeed, the international accord on MDGs calls for global cooperation through official development assistance (ODA), debt sustainability, and international trade. So far, and despite the increase in the volume of aid, only few countries had lived up to the developed countries’ pledge that ODA should constitute at least 0.7 per cent of their gross national income. According to some reports, although development assistance rose to record levels in 2008, donors are falling short by US$35 billion per year on the 2005 pledge on annual aid flows made by the Group of Eight in Gleneagles, and by US$20 billion a year on aid to Africa6. The importance of international trade is also recognized by the MDGs, particularly Goal 8 which calls for decent and productive work for the youth. It is a fact that some free access has been achieved by LDMCs, but their share of world trade has continued to decline. It is therefore important that the developed countries live up to their commitments, even during times of financial crisis, to enable the developing countries to implement their programs in the area of poverty reduction. It is also important that IDB member countries should lay out practical steps, strategies and well-designed programmes to address poverty effectively and attain the MDGs. Where possible, countries may draw on the private sector as an engine of innovation and growth to complement governments in designing, delivering and financing interventions to provid­e sustainable incomes for rural and urban popula­tions. The private sector is also a source of organizational and management exper­tise that can increase the effectiveness of service delivery to the poor. Strengthening the Global Partnership for Development in Times of Crisis, MDG Gap Task Force Report, 2009. 6

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Islamic Solidarity Fund for Development (ISFD)

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PART TWO

ISFD Five-Year Strategy (2008-2012)

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PART TWO

ISFD Five-Year Strategy (2008-2012) 2.1 The Strategy A

five-year

strategy

has

been

developed to guide the operations of the ISFD during the period 20082012.

The

Strategy

emphasises

poverty reduction as an overarching objective of the IDB Group, with ISFD as an important leverage to the various windows and instruments of the Group for achieving this objective. In line with this theme, and the need for urgent actions to speed up achievement of the MDGs as core commitments for the international development community, the strategy has been aimed to position the IDB Group en route to becoming the premier institution for fighting poverty in its member countries. It also supports the IDB’s Special Programme for the Development of Africa in line with the OIC Ten-Year Programme of Action for the Ummah. The strategy was approved by the ISFD Board of Directors in February 2008. To achieve the ISFD objectives, the strategy emphasized human development, especially improvements in health care and education, and providing financial support to enhance the productive capacity and sustainable means of income for the poor, including financing employment opportunities, providing market outlets especially for the rural poor and improving basic rural and pre-urban infrastructure. It also identified agriculture and rural development, human development, basic infrastructure and micro-enterprises as sector priorities. Capacity-building, programs supporting women and environment

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Islamic Solidarity Fund for Development (ISFD)

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protection have also been identified as cross cutting issues in the Fund’s projects and programs. The Strategy emphasizes that poverty reduction projects require a greater range of partners, partly as a reflection of its typical multi-sectoral components and partly to reflect their community-based design. To optimize its impact, therefore, the Fund looks for opportunities to forge partnerships with governments,

development

institutions,

private sector, NGOs, local communities, and other stakeholders who could add value to its projects/programmes. Private sector participants can be either ‘for-profit’ companies operating under a privatisation agreement and providing a service to a Government agreed standard (e.g. managing hospitals, supplying schools etc.), or not-for-profit entities providing a service directly to the poor. The total cost of the programs and projects envisaged by the strategy was estimated at US$13.5 billion, composed of multi-sector programs, thematic programs and individual projects. The ISFD contributes US$2.0 billion as concessional financing towards the total cost of the Strategy projects and programs. This implies a targeted leverage of 1:6 for ISFD financing to implement the Strategy.

2.2 ISFD Special Programs The strategy emphasized two thematic programs as part of its main components: • Vocational Literacy Program (VOLIP), and • Microfinance Support Program (MFSP)

Annual Report 1430H -2009G

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These programs have been developed by the Fund for implementation starting 1429H (2008G). The total cost of each of them is estimated at US$500 million, to which the ISFD will contribute US$100.0 million over the Strategy period. Given the catalyst/facilitator role of the ISFD, the programs are expected to attract resources from other development partners and stakeholders with a leverage of 1:4.

Adding value by processing commodities at the producer level is one of the targets of the ISFD to enhance the poor incomes.

An IDB/ISFD mission consulting with the representatives of a local community in Indonesia.

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Islamic Solidarity Fund for Development (ISFD)

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Poverty Reduction as an Overarching Mission of the IDB The IDB 1440 Vision, entitled ‘A Vision for Human Dignity,’ stresses key aspects of poverty reduction in five of the Bank’s eight main priorities, namely: alleviate poverty, promote health, universalise education, prosper the people and empower women. Two overarching themes define this focus: - The need to improve and enhance the income of the poor through creating jobs and employment opportunities and ensuring that they reach the target groups of poor and disadvantaged people; and - To promote the development of human capital by boosting education, training and health care services. In light of this vision, poverty reduction has become the overarching objective and underlying theme of the IDB’s interventions in member countries.

Objectives of the ISFD The Islamic Solidarity Fund for Development is a special Fund within the IDB dedicated to reducing poverty in its member countries by promoting pro-poor growth, emphasizing human development, especially improvements in health care and education, and providing financial support to enhance the productive capacity and sustainable means of income for the poor, including financing employment opportunities, providing market outlets especially for the rural poor and improving basic rural and pre-urban infrastructure.

Operationalization of the ISFD Guided by the IDB Group Policy for Poverty Reduction, the ISFD programs are tailored to: -

Promote pro-poor growth with particular concerns for equitable distribution of the benefits. Address the barriers and issues faced by women in economic development. Emphasize human development; especially improvements in health care and education. Provide social safety nets for the poor. Promote good governance and access to public service delivery by the poor. Foster and harness full ownership and commitment by member countries.

The policy underscores the need to provide financial support to enhance the productive capacity and sustainable means of income for the poor (including financing employment opportunities, providing market outlets especially for the rural poor, improving basic rural and pre-urban infrastructure, such as the supply of drinking water, roads and electric power).

Annual Report 1430H -2009G

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IDB Group Policy on Poverty Reduction Overall, the IDB Group Policy on Poverty Reduction emphasizes the following: - Operations under the Fund will be well selected, innovative and support the most basic and productive activities that have immediate impact on the lives of the poor people. - The fight against poverty requires partnership and joint action among the key players: bilateral and multilateral development agencies, local development financing institutions, UN agencies, civil society and non-governmental organizations etc. - Economic growth must be accompanied by “pro-poor” redistributive policies, which requires the Fund to ensure that the design of its programs/projects and their expected growth impact will favour the poor segments of the population. - To the maximum extent possible, the interventions will be community-based, to supplement Governments’ efforts in the area of poverty reduction. Wherever possible, NGOs and other civil society organizations will be utilized to implement such interventions. - Though a larger share of the Fund’s resources would go into “basic needs,” such as water supply, primary and secondary education, primary health care, agricultural development and food security, higher education and science & technology would also be considered – basically for two reasons: (a) as drivers for productivity and growth; and (b) as “enhancers” of a country’s competitive edge in the global economy. - While the Fund will benefit the poor segments or vulnerable groups in the society in all member countries, topmost priority will be given to the least developed member countries, especially SubSaharan African countries, as well as countries affected by conflicts. - The Fund shall play a catalytic and facilitator role in mobilizing additional resources for financing its programs from all potential partners, including national, regional and international funding institutions and banks, as well as from the private sector.

Selection of Pro-poor Projects A project/program is considered pro-poor if it benefits poor people in absolute terms. If these beneficiaries support and sustain the local economy, then this will create a direct link between economic growth and poverty reduction. It also implies that the projects/programmes which will be targeted by the Fund must have clear and direct impact on the poor. This broad-based pro-poor growth approach will constitute the basis of the Fund’s intervention in member countries with a view to achieve the following: - Help the poor to break away from poverty with a special focus on the absolute poor. - Achieve sustainability in the poverty reduction activities of the Fund with a view not only to help member countries achieve the MDGs, but also to create opportunities for growth and employment for the poor.

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PART THREE

Operations

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PART THREE

Operations in 1430H In line with the IDB Group Policy on Poverty Reduction, and the ISFD Five-Year Strategy (2008-2012), the main objective of all the projects approved in 1430H was to contribute to the efforts of combating poverty in the countries in which they will be implemented. This required targeting interventions in the areas of social and human development such as basic education, health services, enhancing capabilities, particularly for women and children, and providing the poor with means of sustainable income to break away from poverty.

3.1 Programs’/Projects’ Approvals In 1430H (2009G), 22 operations amounting to US$234.414 million were approved under the umbrella of the ISFD, compared to 26 projects amounting to US$320.26 million approved in 1429H (2008G). Given the limited resources available, the Fund has been selective in picking up these projects and formulating them in such a way as to achieve the maximum possible impact. This is reflected in the sector priorities, geographical focus, as well as the targeted direct beneficiaries of the projects.

3.2 Sector Distribution of Approved Projects – 1430H (2009G) The sector distribution of the approved projects has been as follows: Sector

No. of Projects

Agriculture Transport Education Microfinance Energy Water Health Total

24

5 4 4 4 2 2 1 22

Value (US$m) 53.51 53.30 37.21 27.70 33.31 23.13 6.38 234.41

% 22.8 22.8 15.8 11.8 14.2 9.9 2.7 100%

Islamic Solidarity Fund for Development (ISFD)

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The large share of agriculture and transport in total approvals (22.8% each), was due to the critical importance accorded to these sectors in the IDB Policy for Poverty Reduction as well as the national development plans of member countries. These two sectors in general have the capacity to boost propoor growth and thus help in addressing the root causes of poverty in the rural areas. Consistent with the Fund’s operational principles, due consideration was also given to environmental and women issues in all the approved operations. Three operations (two microfinance and one VOLIP) were approved in the area of thematic programs during the year. In implementing these programs, the catalyst/facilitator role is considered essential in view of the wide gap between the available resources from the Fund and the financing requirements of these programs.

Sector Distribution of Approvals - 1430H 23%

23%

Transport Education

3% 16%

12% 14%

14%

Water Resources Energy Microfinance Health Agriculture

3.3 Country Distribution According to the IDB policy on poverty reduction, the Least Developed Member Countries (LDMCs) will be the main beneficiaries of the ISFD operations. The basic criteria of eligibility to have access to the Fund resources is absolute poverty (i.e. at least 20% of the population, or more are classified as living below the poverty line), stage of achievement in reducing poverty as defined in the policy, need for resources, and absorptive capacity of the recipient country. Eighty percent of the annual financing would be directed towards the LDMCs, and 20% to be allocated to non-LDMCs. In 1430H (2009G), 15 out of the 17 countries which benefited from ISFD financing were LDMCs7, most of which (9) are in sub-Saharan Africa, as can be seen in the ISFD Approved Projects’ Portfolio in Annex I. This is consistent with the IDB policy to give special consideration for the African countries as reflected in the Special Program for the Development of Africa (SPDA) and Jeddah Declaration. All these initiatives are aimed to address short- and long-term economic development of Africa. Moreover, the IDB has decided that the programs supported by the IDB Group, SPDA, Jeddah Declaration, and the ISFD, should be implemented in tandem so as to supplement the amount of resources available from the Fund to member countries and give more incentive to other partners to contribute to these programs. 7 The LDMCs include 25 IDB member countries, namely Afghanistan, Bangladesh, Benin, Burkina Faso, Chad, Comoros, Djibouti, The Gambia, Guinea, Guinea-Bissau, Kyrgyzstan Republic, Maldives, Mali, Mauritania, Mozambique, Niger, Senegal, Sierra Leone, Somalia, Sudan, Tajikistan , Togo, Uganda, Yemen. As a special case, the State of Palestine is given the same terms and conditions as LDMCs.

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3.4 Terms & Conditions of Financing The terms and conditions of the approved operations in 1430H (2009G) have all been financed on concessional terms, i.e. ranging from 0.75% to 2.0% for service charges, 7 to 10 years for grace periods, and 20 to 30 years for repayment periods. This was in line with the approved ISFD loans terms and conditions.

ISFD Terms and Conditions of Financing Loan Type

High Poverty Content Ordinary Loans for Poverty related programs/ projects

Percentage Allocation

LDMCs/Low-Income Countries

Middle-Income Countries

High Income Countries

20%

Service fee up to 0.75% per annum with 30 years repayment period including 10 years of grace period.

N/A

N/A

80%

service fee up to 2.0% per annum with 25 years repayment period including 7 years of grace period. 80%

Service fee up to 2.0% with 20 years repayment period including 5 years of grace period. 15%

Service fee up to 2.0% with 15 years repayment period including 4 years of grace period. 5%

3.5 Co-financing The ISFD actively promotes co-financing to increases the total amount of funding

26.1%

available and maximize its impact. In 1430H (2009G), the total cost of the approved

projects

was

73.9%

ISFD

US$899.47

Other Financers

million, whereas the ISFD contributed US$234.54 million – representing 26.1 – percent and the remaining cost was covered by other partners including the

ISFD Co- financing

IDB, national Governments, multilateral institutions and bilateral donors.

3.6 Partnerships for VOLIP and Microfinance Forming partnerships is one of the key objectives of the ISFD Five-Year Strategy (2008 – 2012), and one of the best ways of leveraging the Funds resources and scaling up its programs. Consequently,

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Islamic Solidarity Fund for Development (ISFD)

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a number of partnerships were developed with other institutions to assist in the effective implementation of the ISFD Vocational Literacy (VOLIP) and Microfinance Support Programs (MFSP). Some of these partnerships are briefly highlighted below.

-

ISFD-Grameen Social Business Program Initiative:



The ISFD has started exploring and developing a Social Business program in collaboration with Grameen

Bank

in

Bangladesh

that was proposed by Professor Mohammed

Yunus,

Managing

Director of Grameen Bank, in November 2008.

The ISFD is

considering providing a US$10.0 million to support this initiative and also exploring the possibility of implementing this initiative with potential partners in other IDB Member Countries.

-

International Islamic Charitable Organization (IICO):



The ISFD is working in collaboration with the International Islamic Charitable

Organization

(IICO),

based in Kuwait, on a program for the support of the needy women in several countries, such as Uganda,

IDB/ISFD mission to Grameen Bank in Dhaka, Bangladesh, to discuss the Social Business Initiative (SBI)

Sudan, Egypt, Jordan, Bahrain, Pakistan and Bangladesh. The initial cost of the program is estimated at US$15.0 million, to which IICO will provide US$4.0 million and the ISFD US$5.0 million. In addition, the Fund and IICO are coordinating together to mobilize resources from other sources to cover the remaining amount. The ISFD financing will be used for microfinance to productive activities that aim to provide employment opportunities for the needy communities and improve their living conditions.

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-

Prince Salman Centre for Disability Research (PSCDR) and the Saudi Credit and Saving Bank (Kingdom of Saudi Arabia):



These parties, together with ISFD, signed a tripartite Framework Agreement in which the Saudi Credit and Saving Bank has committed SR150.0 million (US$40.0 million) to the program, which will mostly be used for training the disabled and providing them with microfinance for small and very small enterprises.

-

Other Partnerships:



The ISFD is also in the process of entering into partnership with many organizations, such as the World Bank (MENA Region), African Development Bank, UN agencies, The Carter Centre, Qatar Charity Organization, Earth Institute (Millennium Villages Project), etc, to implement poverty related projects.

3.7 Looking Ahead To further enhance its operations, and in view of the limited capital resources, the ISFD plans to:

28



Initiate Special Programs and Trust Funds, including Public-Private and Individual Partnerships across countries, regionally and internationally, and develop programs for a new group of countries on communicable diseases – Malaria and HIV/AIDS in particular.



Participate in the IDB Group Jeddah Declaration Program and the Special Program for the Development of Africa (SPDA) which aim to contribute to the efforts of addressing food crisis in member countries.



Develop Country Poverty Assessments (CPAs) in LDMCs, with a view to cover all of them by 1433H and provide inputs into the Member Country Partnership Strategies (MCPSs) in collaboration with other entities of the IDB. This will enable the Fund to achieve its goal of moving gradually from individual project’s financing to program financing.



Implement Community Driven Development (CDD) projects/programs with special focus on women/gender issues and organise regional workshops on poverty and the CDD approach.



Undertake a “mid-term” review of the ISFD Five-Year Strategy (2008-2012) to evaluate implementation against expectations, lessons learnt and how to strengthen implementation of the plan, particularly leveraging.

Islamic Solidarity Fund for Development (ISFD)

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PART FOUR

Corporate Aspects

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PART FOUR

Corporate Aspects 4.1 Activities of the ISFD Board of Governors The supreme authority of the ISFD is vested in the Board of Governors. The 2nd Meeting of the ISFD BOG was held in Ashgabat in Turkmenistan on 9 Jumad-I, 1430H (2 June, 2009), coinciding with the 34th IDB Group Annual Meeting of the BOG, The BOG adopted the ISFD Annual Report and

Audited

Financial

Statements

-

1429H (2008G). It also deliberated on the progress of the Fund during 1429H and expressed concerns about the low levels of

President of Turkmenistan receiving IDB Group President on the occasion of the 34th IDB Group Annual Meeting in Ashgabat, Turkmenistan

contributions to the capital of the ISFD. The Board emphasized the importance of resource mobilization for implementation of the ISFD programs and asked the ISFD management to continue consultations with the ISFD Governors with a view to come up with an appropriate criteria for guiding member countries’ contributions to the Fund. The BOG decided that the 3rd Annual Meeting of the ISFD BOG would be held in Baku in Azerbaijan on 12 Rajab 1431H (24 June 2010). It also approved Messrs Deloitte & Touche and Bakr Abulkhair & Co. as auditors of the ISFD Financial Accounts in 1430H (2009G).

4.2

Activities of the ISFD Board of Directors

As per the regulations of the ISFD, the Board of Executive Directors of the IDB has been appointed as the Board of Directors of the ISFD (BOD) to provide strategic guidance and take decisions regarding

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Inaugural Session of the 34th IDB Group Annual Meeting of the BOG in Ashgabat, Turkmenistan, on 9 Jumad-I, 1430H (2 June, 2009)

all forms of financing, as well as the resources, operational procedures and policies, and rules and regulations of the Fund. The BOD members perform their duties under the powers delegated to them by the Board of Governors. The IDB President is ex-officio chairperson of the BOD. During 1430H, the BOD continued to closely monitor implementation of the ISFD’s poverty reduction mandate. It held 8 meetings during which it considered a number of items related to projects financing and policy issues. Eight ISFD Progress Reports were considered by the BOD, highlighting the various activities carried out by the Fund as well as areas for further actions and improvement. The Board approved 21 operations amounting to US$223.52 million for poverty reduction projects/ programs in 17 IDB member countries. It also considered one operation approved by the President of the IDB, under the authority delegated to him by the BOD, amounting to US$10.89 million. The BOD also approved the terms and conditions of the loans extended under the umbrella of the ISFD as well as the new policy to treat IDB financing through the ISFD as “co-financing” with the ISFD.

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The BOD approved the participation of the new members of the ISFD who announced their contributions after the approval of the Regulations of the Fund. It also approved the terms of payment of contributions to the ISFD as follows: a.

Contributions below US$1.0 million, to be paid in one instalment.

b.

Contributions exceeding US$1.0 million, to be paid in three equal annual instalments.

c.

These terms of payment shall be applicable for payments of contributions to the ISFD that have already been announced, and/or that will be announced in the future.

The ISFD BOD also approved the realignment of the ISFD structure as part of the IDB reform program launched in July 2009 in order to respond more efficiently to the challenges of poverty reduction in member countries. Two divisions have been created within the Fund: Advocacy and Special Programs Division and Program Management Division. The Fund’s staff complement has also been strengthened as part of the restructuring exercise. As usual, all ISFD projects/programs have continued to be implemented through the IDB country/sector departments.

4.3 ISFD Membership So far, 38 IDB member countries8 and the IDB have announced their contributions to the Fund (see Annex II). Of the countries which have announced their contributions, 11 have fully paid their contributions, 13 countries made partial payment, and 14 have not yet started paying their contributions. Eighteen IDB member countries are yet to announce their contributions to the capital of the Fund. 37 IDB member countries at the end of 1430H (2009G).

8

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Islamic Solidarity Fund for Development (ISFD)

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PART FIVE

Financial Review

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PART FIVE

Financial Review 5.1 Resources of the FUND The initial targeted capital of the Fund is US$10.0 billion consisting of contributions by member countries of the IDB, and the IDB. Total pledges as at the end of 1430H stood at US$2.629 billion, composed of US$1.629 billion committed by 37 IDB member countries, and US$1.0 billion committed by the IDB. As can be seen in Annex I, the biggest pledges were made by Saudi Arabia (US$1.0 billion), Kuwait (US$300.0 million), and Iran (US$100.0 million). Paid-in capital was US$1,060.66 million as at the end of 1430H (2009G), compared to US$538.2 million in 1429H (2008G). Out of this, US$860.656 million was paid by member countries and US$200.0 million by the IDB. Net profit for the year was US$2.568 million, compared to US$21.881 million in the year before. The Fund has separate accounts and records of its capital resources and operations. All operations and investments activities of the Fund are conducted in conformity with Shariah (Islamic law) governing Islamic Awqaf (Trusts). Although the accounts of the Fund are kept in US dollar, the ISFD Regulations stipulate that they can be kept in any currency, currencies, or unit of account that the Board of Directors may deem appropriate. As an interim measure, the BOD decided to use the US dollar as a unit of account of the Fund since its capital is denominated in US dollars. The Fund’s accounts are kept by the IDB Finance Department.

5.2 Operations Financing The ISFD approvals in 1430H (2009G) amounted to US$234.41 million, for 22 operations in 17 IDB member countries. These operations were partly financed from the IDB allocations for concessionary financing under the umbrella of ISFD. It is expected that commencement of disbursements for these projects will start in 1431H (2010G).

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Islamic Solidarity Fund for Development (ISFD)

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The applied terms and conditions to the Fund’s operations were set in a manner which would ensure that financing would be provided on concessional terms to the member countries while also ensuring the long-term sustainability of the Fund.

5.3 Income The ISFD liquid funds are composed of paid-in contributions from member countries and the IDB. During the year, these funds were invested in Murabaha and short-term Shariah compatible placements. In doing so, these investments were guided by the generally accepted sound investment principles and paramount consideration was given to the preservation of the value of the Fund’s principal resources. All investments during 1430H (2009G) were made in US dollar and Euro. ISFD operating income in 1430H (2009G) was US$11.23 million, composed of income from commodity placements (US$8.76 million), murabah (US$2.12 million) and syndication (US$0.35 million). This is equivalent to an average annual rate of return of 1.35 percent, compared to an income of US$21.881 million - equivalent to an average annual rate of return of 2.30 percent - achieved in the year before. Net income was US$2.568 million, having made a provision of US$7.75 million for non- performing sukuk (bonds) investments which were made in a company during the year. The low income was also due to the low margins on investment of the ISFD capital resources during the year which were a reflection of the impact of the financial crisis and deceleration of the world economy in 2009. As disbursements of ISFD projects have not yet been started, no accrued income was made on the Fund’s operations during the year. Regarding the impact of exchange rates movements, although there were fluctuations in the value of the currency of denomination of the Fund (US dollar) during the year, the net impact was positive as the Fund registered a net currency gain of US$0.835 million, compared to a currency loss of US$1.656 million which was registered in 1429H (2008G).

5.4 Management of Liquid Funds ISFD is required to invest its resources which will not be immediately required for financing its operations. As a waqf (i.e. Trust), paid-in capital would not be available for utilization in the Fund’s operational activities. Therefore, to maximise the income of the Fund, liquidity would be maintained only to the extent that can meet the Fund’s current cash requirements and undisbursed commitments.

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The ISFD liquid assets are invested based on guidelines which are issued with the IDB Risk Management Department. In the meantime, the ISFD is in the process of developing an Investment Policy to guide the short- and long-term investment of its capital resources.

Key Financial Indicators (in US$m)

1429H

1430H

2,610.0

2,629.0

Capital Contributions: Payments

538.2

1,060.7

Operating Income

23.54

11.23

Net Income

21.88

2.568

Capital Contributions: Commitment

36

Islamic Solidarity Fund for Development (ISFD)

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PART SIX

Challenges and Prospects

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PART SIX Challenges and Prospects 6.1 Limited Resource Base of the ISFD As per the desire of the Makkah Summit, the Fund has been established on the basis of “voluntary contributions from member countries” to illustrate “Islamic solidarity and brotherhood” among them. Hence, all member countries are expected to contribute to the Fund’s core capital. However, major contributions are expected to come from the group classified as high income member countries. Generous contributions by this group of countries will offset the potentially small contributions from the least developed member countries (LDMCs). Considering that the ultimate success of the ISFD depends upon the financial and material support to be provided by member countries, especially the richer ones, the IDB has undertaken a resource mobilization drive with the assistance of the OIC Chairman as well the successive Chairmen of the ISFD Board of Governors. Several countries in North Africa, the Gulf and Asia have been visited to raise awareness about the ISFD and the need to make appropriate contributions to its capital. So far, 38 member countries9 have announced their contributions, which together with the IDB, have amounted to US$2.629 billion. The biggest commitments have come from the Kingdom of Saudi Arabia (US$1 billion), the State of Kuwait (US$300 million), Islamic Republic of Iran (US$100 million), the State of Qatar (US$50 million), and Algeria (US$50 million). Many of the least developed member countries in Africa have also made pledges. The IDB itself has committed US$1.0 billion to be paid over 10 years. The amount announced both by the member countries and the IDB represents 26.3 percent of the principal targeted capital of the Fund (US$ 10.0 billion). The IDB is fully aware that extra efforts need to be exerted to mobilize additional resources for the Fund. 37 IDB member countries at the end of 1430H (2009G).

9

38

Islamic Solidarity Fund for Development (ISFD)

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Criteria for Contributions: Basically, the contribution to the Fund is voluntary. However, with the view to help those in most need, the more economically able countries are expected to contribute more than the less able ones. Towards this end, the ISFD has developed several criteria that may be used to guide member countries on their contributions. These criteria are based on: •

Share of a country’s real GDP (say, 0.2% over 3-4 years, which is far less than the international benchmark of 0.7%).



Share of the annual total merchandise exports



A share of a country’s foreign exchange reserves



A weighted combination of the above criteria



A proportionate share of each member country’s subscribed or paid-in capital to the IDB

The success of the Fund in fulfilling its objective of fighting poverty in the IDB member countries depends mainly on the financial support it receives from these countries. Despite the progress made in 1430H (2009), the current amounts of committed and paid-in capital are too small to enable the Fund to implement its programs as envisaged by its Five-Year Strategy (2008-2012). Hence, the issue of resource mobilization remains the most compelling challenge for the IDB in 1431H. The IDB, therefore, looks forward for member countries who did not contribute so far to the Fund’s resources to do that at the soonest possible and those member countries who made initial contribution to increase it further to enable the Fund to play its noble role. The Fund looks forward with optimism that member countries will implement the resolutions of the OIC Summit, COMCEC Summit and IDB Board of Governors in this regard, as it is only through such strong commitment that the ISFD will be able to contribute significant amounts to its projects/programs and attract strong partners to assist in the fight against poverty in the member countries, particularly the least developed ones. In addition to the commitments of the member countries, the management of the ISFD will exert effort to tap the waqf/Zakat and private sector funds to augment the Fund’s resources. The ISFD will

Annual Report 1430H -2009G

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IDB/ISFD mission consulting with local communities in Indonesia.

also launch an initiative to administer special funds, as desired by the contributors to these funds to be applied to particular poverty-related program/project, and build strong partnerships and co-financing arrangements with development partners.

6.2 Enhancing Resource Mobilization Efforts The ISFD will launch a resource mobilization campaign through various activities, including: -

Mounting high-level missions to member countries to sensitize the authorities in these countries about the need to commit resources to the Fund.

-

Contracting a reputable public relations firm which could assist in promoting the activities of the fund as well as advise on various alternatives of ways and means for resource mobilization.

-

Building network – partnering with UN agencies, regional banks, foundations, private businesses, and civil society organizations.

-

Organizing conferences at a regional level for private sector, awqaf (Trusts) and Zakat institutions and charitable organizations to build up partnerships and augment ISFD resources.

-

Establishing specific poverty-related Trust Funds.

-

Enhancing the ISFD staff capacity for better program’s/project’s formulation, design and timely implementation, as well as in the area of marketing and building of partnership skills.

The Fund will also constitute the ISFD High-Level Advisory Board, as called for in the ISFD Regulations, which will assist in the campaign for resource mobilization.

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Islamic Solidarity Fund for Development (ISFD)

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ANNEXES

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Islamic Solidarity Fund for Development (ISFD)

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Albania

Bangladesh

Benin

Burkina Faso

3

4

5

Afghanistan

1

2

Country

S/No.

US$ 16.85 million

US$ 13.58 million

Construction and Equipping of a Hostel for the Students of the University of BoboDioulasso

US$ 43.68 million

US$ 44.0 million

US$ 90.94 million

Total Cost

Small Irrigated Perimeters Development Project

Strengthening of Quality Seeds Supply Project

Reconstruction of Secondary and Local Roads Project

Doshi-Pol-E-Khumri Road Project

Project

US$ 3.12 million

US$ 5.90 million

US$10.0 million

US$10.0 million

US$10.20 million

ISFD Contribution

18/10/09

31/05/09

31/05/09

18/10/09

5/07/09

Approval Date

Constructing and equipping a student hostel for 552 students of the Polytechnic University of Bobo-Dioulasso. The project will assist in reducing the students’ dropout caused by the difficult living conditions and help in increasing the pass rate of students, particularly girls.

The project comprises of (i) development of low lands, small irrigated perimeters, water retention dams, and wide diameter wells, (ii) construction of rural infrastructure, (iii) provision of agricultural equipment and vehicles, (ix) agricultural inputs, and (x) support research and development. It will improve food security and contribute to alleviating poverty of the rural population.

Enhance the capacity of three agriculture institutions, namely: Bangladesh Rice Research Institute (BRRI), Bangladesh Agriculture Research Institute (BARI), and Bangladesh Agriculture Development Corporation (BADC), to increase the supply of quality seeds to farmers.

Reconstruction of 173 km of roads, which comprise the portion financed by the ISFD/IDB out of a multi-donor financed program for the overall improvement of 1500km of secondary and rural roads in the country. The project will improve the living standards of the population in the hinterland by providing them with access to essential services and economic opportunities.

Supplementary financing to restore road connection between Kabul and northern provinces as well as IDB member countries along Afghanistan northern border, Namely: Tajikistan, Uzbekistan and Turkmenistan. The road will promote regional economic integration and facilitate trade, delivery of humanitarian aid, and reconstruction efforts in Afghanistan.

Description & Objectives of the Project

ISFD Projects’ Profiles* – 1430H (2009)

Annex I

Annual Report 1430H -2009G

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Niger

Nigeria

11

12

Mozambique

Morocco

9

10

US$61.41 million

Expansion of Water Supply for Fes City & Rural Communities in Taza Province

8

US$18.93 million

US$21.13 million

Construction and Equipping of Four Science Secondary Schools in Kaduna State

US$11.42 million

Special Program for Food Security (Phase II)

Niassa Province Rural Electrification Project

US$10.05 million

Microfinance Project

Kyrgyz Republic

US$6.8 million

Malaria Prevention and Control Project

Chad

7

SangmelimaOuesso Rod Project

Cameroon

6

Euro 89.28 million (US$127.94 million)

US$17.32 million

US$15.91 million

US$10.31 million

US$10.53 million

US$5.0 million

US$6.384 million

Euro 7.86 million (US$11.17 million)

18/08/09

18/08/09

31/05/09

18/08/09

5/07/09

8/02/09

18/08/09

Constructing and equipping four science secondary schools with the aim to increase the number of science graduates from senior secondary schools in Kaduna State so as to produce the necessary manpower that will be required for the future development of the State.

Contribute to strengthening food security by increasing the production and productivity of agriculture, livestock and fishing through intensification and diversification of production, hydro-agricultural land development and support to farmers associations. It also involves microfinance capacity building support.

Contribute to improving the living conditions of the population and supporting the economic development of the Niassa Province in the Northern region of Mozambique by supplying low cost electricity to rural communities in three main localities (Marrupa, Nipepe, and lago.

Increase water supply to the urban areas in the southern districts of Fes City from the existing Ain Nokbi Water Treatment Plant and the rural population in Taza Province from the transmission line of Bab Louta Dam and Asfalou Dam.

Enhance the existing microfinance schemes in reducing poverty and providing increasing access of the poor to microfinance in three targeted areas, namely: Chui, Osh, and Greater Bishkek area.

Project’s scope includes: malaria prevention, construction of offices for the National Malaria Control Program, design and supervision, equipment and furniture, training, and support to the project’s management. The project is part of the national program supported by development partners which aims at reducing by 50% the morbidity and mortality rates due to malaria in Chad by 2012.

Construction of 103 km road linking Sangmelima to Djoum in southern Cameroon. The project aims to facilitate national integration through improving the transfer of goods and services between rural areas and economic centers in the project influence areas.

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Islamic Solidarity Fund for Development (ISFD)

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Sudan

Sudan

Sudan

Tajikistan

Tajikistan

Togo

14

15

16

17

18

Country

13

S/No.

US$62.5 million

US$ 92.9 million

US$ 20.08 million

Microfinance Support Program

Construction of Kulyab-Kalaikhum Road Project

Microfinance for Rural Areas Project

Euro 31.86 million (US$44.92 million)

US$19.23 million

Development of the Faculty of Engineering of the University of Khartoum Project

Bassar – Katchamba Road Project

US$14.02 million

Total Cost

Water Harvesting Project for Agro-Pastoral Development in Al-Gadarif State

Project

Euro 8.54 million (US$12.0 million)

US$10.0 million

US$20.0 million

US$3.0 million

US$5.88 million

US$12.6 million

ISFD Contribution

31/05/09

5/07/09

5/07/09

13/12/09

18/08/09

8/02/09

Approval Date

Upgrading and surfacing 90.5 km of existing earth road linking the localities of Bassar to Katchamba. Comprises of (i) civil works, (ii) consultancy services, (iii) environmental and social measures, and (ix) management unit for the project.

Support and complement the Government>s efforts to achieve economic growth and alleviate poverty by increasing the access of rural and urban poor, particularly women, to appropriate, reliable and affordable microfinance services.

Provide Year-round, reliable and direct land transport service between the western part of Tajikistan and the eastern region Gorno-Badakhshan. It will also link Tajikistan with the strategic Karakorum highway in China and provide access to Karachi sea port in Pakistan.

Project’s scope includes: Establishing microenterprises, capacity building to set-up microfinance sharia’a compatible system, vocational training, PMU, audit and supervision. It aims at improving the livelihoods low-income people through improving their access to microfinance services, vocational training and business opportunities.

Producing qualified engineering graduates, equipped with the needed skills to support economic development. The project will include civil and electromechanical works for upgrading the faculty facilities, quality enhancement component, establishment of an outreach program as well as a management support unit.

Projects scope includes: construction of 3 dams, 3 reservoirs, earth moving machinery, erosion control facilities and forestry activities, veterinary services, consultancy services, PIU, start-up workshop and project auditing. It aims to secure, through water harvesting techniques, enough water during the dry season for both human and livestock consumption.

Description & Objectives of the Project

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Yemen

Yemen

Yemen

20

21

22

US$21.58 million

899.47

Vocational Literacy for Poverty Reduction Program

TOTAL US$m

US$117.0 million

US$12.85 million

Abyan Agricultural Development Project

Rural Electrification Project

US$ 27.66 million

234.414

US$10.89 million

US$ 23.0 million

US$11.5 million

US$9.70 million

15/12/09

31/05/09

29/03/09

31/05/09

Project’s scope includes: Access to non-formal education, youth vocational training, training for women workers, access to microfinance, capacity building, PMU, and audit services. It aims to reduce rural poverty in three governorates in Yemen by empowering poor rural families with literacy proficiency, market oriented vocational training and access to microfinance.

Improving access to electricity in the project area by providing electricity to 200,000 households as well as supporting the Government of Yemen in raising the electricity coverage in rural areas by 10% from the grid and off-grid power sources.

Project’s scope includes construction of a dam, water retention barriers, boreholes, microfinance facility, agricultural and veterinary extension services, agricultural research, consultancy services, PMU, monitoring workshops and financial audit. It aims at improving agricultural productivity and smallholder income in Abyan Governorate through developing sustainable water resources.

Facilitate access to affordable, sustainable and convenient financial and business development services by active and productive Ugandans within the framework of (i) revolving line of microfinance, and (ii) institutional and business development services for microfinance support institutions.

- Construction of Taoussa Dam Mali, (US$10.0 million).

Also, of the total approved amount of US$23.0 million for the “Rural Electrification Project”, Yemen, US$13. 0 million were committed in 1430H and the remaining amount (US$10.0 million) will be committed against the Operational Budget in 1431H. The project was approved in 1430H (2009G).



- Reconstruction Program for the Centre-North-West Zone, Cote d’Ivoire (US$9.40 million).

*In addition to this list, there are two roll-over projects which were approved in 1429H (2008) but had been partly committed against the ISFD Operational Budget in 1430H (2009) as follows:

Uganda

19

Rural Income and Employment Enhancement Project

Annex II

Contributions to ISFD Capital Resources (As at End-1430H (2009)* - “In Thousands of USD” No.

Country

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

Algeria Azerbaijan Brunei Bangladesh Burkina Faso Bahrain Benin Cameroon Chad Cote d’Ivoire Gabon Guinea Iran Iraq Jordan Kuwait Lebanon Malaysia Mali Mauritania Morocco Niger Nigeria Oman Pakistan Palestine Qatar Senegal Sudan Saudi Arabia Suriname Syria Sierra-Leone Togo Turkey Uzbekistan Yemen IDB

Contribution

Payments

50,000 300 2000 1000 2200 2000 12,500 2000 2000 5000 2000 2000 100,000 1000 3000 300,000 1000 20,000 4000 5000 5000 2000 2000 5000 10,000 500 50,000 10,000 15,000 1,000,000 500 2000 1000 1000 5000 300 3000 1,000,000

34,768 324 2000 1000 758 2000 2000 65,000 1000 3000 1000 10,500 3333 1332 5000 5116 186 50,000 666,667 500 2000 200 2972 200,000

Outstanding Payments 15,232 0 0 0 1442 2000 12,250 2000 2000 5000 0 0 35,000 0 0 300,000 0 9500 4000 5000 1667 2000 668 0 4884 314 0 10,000 15,000 333,333 0 0 1000 1000 5000 100 28 800,000

*Since then, Kazakhitan has paid US$1.0 million towards the ISFD capital resources.

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Islamic Solidarity Fund for Development (ISFD)

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AUDITED FINANCIAL STATEMENTS

For the year 1430H

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­AUDITORS’ REPORT Your Excellencies the Chairman and Members of the Board of Governors Islamic Development Bank Scope of Audit We have audited the accompanying statement of financial position of Islamic Development Bank - Islamic Solidarity Fund For Development (the “Fund”) as of Dhul Hijjah 30, 1430H and the related statements of activities, cash flows and changes in net assets for the year then ended, and a summary of significant accounting policies and other explanatory notes as prepared by the management and presented to us with all the necessary information and explanations. These financial statements are the responsibility of the management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as it evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Unqualified Opinion In our opinion, financial statements referred above present fairly, in all material respects the financial position of the Fund as of Dhul Hijjah 30, 1430, and the results of its operations and its cash flows for the year then ended in conformity with the significant accounting policies as mentioned in (note 2). Deloitte & Touche Bakr Abulkhair & Co.

Al-Mutahhar Y. Hamiduddin License No. 296 28 Rabi’ I, 1431 March 14, 2010

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Islamic Solidarity Fund for Development (ISFD)

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ISLAMIC DEVELOPMENT BANK ISLAMIC SOLIDARITY FUND FOR DEVELOPMENT STATEMENT OF FINANCIAL POSITION AS OF DHUL HIJJAH 30, 1430H (In Thousands of USD) Notes

1430

1429

NET ASSETS ASSETS Cash and cash equivalents Short term commodity placements with banks Investment in Murabaha Investment in Sukuk, net Accrued income

3 4 5

TOTAL ASSETS

385,137 613,375 21,018 67,311 1,737

109,577 449,428 8,299 2,696

1,088,578

570,000

3,473

9,895

3,473

9,895

1,085,105

560,105

1,060,656 24,449

538,224 21,881

1,085,105

560,105

LIABILITIES Payable to Islamic Development Bank – Ordinary Capital Resources - OCR

6

TOTAL LIABILITES NET ASSETS REPRESENTED BY: 1

Fund Resources Retained earnings

The financial statements were authorized for issue in accordance with a resolution of the Board of Executive Directors on 28 Rabi’ I, 1431H (March 14, 2010). The attached notes from 1 to 7 form an integral part of these financial statements.

Annual Report 1430H -2009G

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ISLAMIC DEVELOPMENT BANK ISLAMIC SOLIDARITY FUND FOR DEVELOPMENT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DHUL HIJJAH 30, 1430H (In Thousands of USD)

1430

PERIOD FROM 13 JUMAD AWWAL 1428H (INCEPTION) TO 30 DHUL HIJJAH 1429H

Income: 8,762 349 2,121 -

23,063 424 50

11,232

23,537

(1,131) (199) 835 (7,745) (424)

(1,656) -

2,568

21,881

Commodity placements with banks Investment in Murabaha Investment in Sukuk Proceeds from call accounts

Expenditure: Salaries and benefits General administrative expenses Exchange gain / (loss) Provision for impairment of assets Others Surplus of income over expenditure

The attached notes from 1 to 7 form an integral part of these financial statements.

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Islamic Solidarity Fund for Development (ISFD)

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I­ SLAMIC DEVELOPMENT BANK ISLAMIC SOLIDARITY FUND FOR DEVELOPMENT STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DHUL HIJJAH 30, 1430H (In Thousands of USD)

Note

1430

PERIOD FROM 13 JUMAD AWWAL 1428H (INCEPTION) TO 30 DHUL HIJJAH 1429H

OPERATING ACTIVITIES 2,568

21,881

7,745

-

959 (6,422}

(2,696) 9,895

4,850

29,080

Short term placements Investment in Murabaha Investment in Sukuk

(163,947) (12,719) (75,056)

(449,428) (8,299} -

Net cash used in investing activities

(251,722)

(457,727)

Contributions received

522,432

538,224

Net cash from financing activities

522,432

538,224

Net movement in cash and cash equivalents

275,560

109,577

Cash and cash equivalents at the beginning of the year / period

109,577

-

385,137

109,577

Excess of income over expenditure for the year / period Adjustments to reconcile net income to net cash from operating activities: Provision for impairment of assets Changes in assets and liabilities: Accrued income Payable to IDB – OCR Net cash from operating activities INVESTING ACTIVITIES

FINANCING ACTIVITIES

Cash and cash equivalents at the end of the year / period

3

The attached notes from 1 to 7 form an integral part of these financial statements.

Annual Report 1430H -2009G

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ISLAMIC DEVELOPMENT BANK ISLAMIC SOLIDARITY FUND FOR DEVELOPMENT STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DHUL HIJJAH 30, 1430H (In Thousands of USD) Fund resources

Contributions received during the period

Retained earnings

Total

538,224

-

538,224

-

21,881

21,881

Balance at 30 Dhul Hijjah 1429

538,224

21,881

560,105

Contributions received during the year

522,432

-

522,432

-

2,568

2,568

1,060,656

24,449

1,085,105

Surplus of income over expenditure for the period

Surplus of income over expenditure for the year

Balance at 30 Dhul Hijjah 1430

The attached notes from 1 to 7 form an integral part of these financial statements.

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Islamic Solidarity Fund for Development (ISFD)

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ISLAMIC DEVELOPMENT BANK ISLAMIC SOLIDARITY FUND FOR DEVELOPMENT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DHUL HIJJAH 30, 1430H (In Thousands of USD)

1. INCORPORATION AND ACTIVITIES



The Islamic Solidarity Fund for Development (“the Fund”) was established pursuant to the decision taken at the Third Extraordinary session of the OIC Islamic Summit conference in Makkah in December 2005 (Dhul Qadah 1426H).



The purpose of the Fund is to finance different productive and service projects and programs that help in reducing poverty in member countries of the Organization of Islamic Conference in accordance with its Regulations. The ISFD was officially launched during the 32nd meeting of the IDB Board of Governors, held on 12-13 Jumad Awwal 1428H (29-30 May 2007) , in Dakar, Senegal through adoption of the BoG resolution no. BG/5-428.



The target principal amount of the Fund is US$ 10 billion. The principal amount shall consist of contributions from IDB and institutions of member countries. IDB has committed to contribute US$ 1 billion, payable in 10 annual installments of US$ 100 million each.



The Fund shall be administered by a Board of Directors. The President of IDB shall be ex-offico Chairman of the Board of Directors. The resources of the fund available for utilization in its activities shall consist of: 1. Income from the Waqf; 2. Fund derived from operations or otherwise accruing to the Fund; 3. Others resources received by the Fund.



All dealings and activities of the Fund shall be in conformity with Islamic Shariah. The financial statements of the Fund are expressed in thousands of United States Dollars (USD).



The Fund’s financial year is the lunar Hijra year.



As a Fund of the Bank, which is an international institution, the ISFD is not subject to an external regulatory authority.

Annual Report 1430H -2009G

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2. SIGNIFICANT ACCOUNTING POLICIES

54



a) Basis of preparation The financial statements have been prepared in accordance with the following significant accounting policies. The financial statements are prepared under the historical cost convention on the accrual basis of accounting.



b) Murabaha financing Murabaha is an agreement whereby the Fund sells to a customer a commodity or an asset, which the Fund has purchased and acquired based on a promise received from the customer to buy. The selling price comprises the cost plus an agreed profit margin.



c) Investments in Sukuk Investments in Sukuk are held to maturity and stated at cost, except if there is an impairment of value other than temporary in those investments. In such situation, investments at statement of financial position date are re-measured at their fair value and the difference is recognized in the statement of income.



d) Impairment of financial assets The Fund determines the provision for impairment losses based on an assessment of incurred losses. An assessment is made at each financial position date to determine whether there is objective evidence that a financial asset or a group of financial assets may be impaired. The impairment loss results from the difference between the carrying amount of the asset and the net present value of the expected future cash flows discounted at the implicit rate of return from the financial asset. The impairment provision is periodically adjusted based on a review of the prevailing circumstances



Impairment losses are adjusted through the use of an allowance account. When a financial asset is not considered recoverable, it is written off against the allowance account. Subsequent recoveries of amounts previously written-off are credited to the statement of income.



e) Translation of currencies Transactions in currencies other than the US dollar are recorded at the exchange rates prevailing at the dates of the respective transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated the US dollar on the basis of rate prevailing in the market at the date of the statement of financial position. Foreign currency exchange gains and losses are included in the statement of activities.

Islamic Solidarity Fund for Development (ISFD)

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f) Cash and cash equivalents Cash and cash equivalents comprise bank balances, fixed deposits and placements with banks with original maturity of three months or less at the date of acquisition.



g) Revenue recognition Return on short term placement with banks is accrued evenly over the period of the deposits. The rate of return approximates the prevailing market rates.



Any income from cash and cash equivalents and other investments, which is considered by management as forbidden by Shari’ah, is not included in the Fund’s statement of income but is transferred to Special Account Resources Waqf Fund (an affiliate).



Income from Murabaha financing is accrued on a time apportionment basis over the period from the date of the actual disbursement of funds to the scheduled repayment date of installments.



Income from investments in Sukuk is accrued on a time apportionment basis using the rate of return advised by the issuing entities.

3. CASH AND CASH EQUIVALENTS Cash and cash equivalents at the end of Dhul Hijjah comprise the following:

1430 Cash at banks Short term commodity placements with banks



(In Thousands of USD) 1429

5,537 379,600

4,704 104,873

385,137

109,577

Short term placements with banks comprise those placements with original maturities of ninety days or less.

4. INVESTMENT IN MURABAHA This represents the following:

1430 Gross amounts receivables Less: Unearned income

(In Thousands of USD) 1429

21,307 (289)

8,307 (8)

21,018

8,299

Annual Report 1430H -2009G

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All goods purchased for resale under Murabaha financing are made on the basis of specific purchase for resale to the subsequent customer. The promise of the customer is considered to be binding. Consequently, any loss suffered by the Fund as a result of default by the customer prior to the sale of goods would be made good by the customer. The Fund’s foreign trade operations are being managed by the ITFC for which the ITFC charges a Mudarib fee. The Mudarib fee for the year ended 30 Dhul Hijjah 1430H was USD 9 thousands (1429: USD 5 Thousands) which has been netted off from the income from Murabaha financing. 5. INVESTMENT IN SUKUK This represents the following:

1430 Investment in sukuk Less: Provision for impairment

(In Thousands of USD) 1429

75,056 (7,745)

-

67,311

-

6. RELATED PARTY TRANSACTIONS During the ordinary course of its business, the Fund has certain transactions with IDB – OCR and ITFC relating to investments and realization of investments made through the inter-fund account between the Fund, IDB and ITFC. The balance due to IDB-OCR as at Dhul Hijjah 30, 1430H was USD 3,473 thousands (1429H: USD 9,895 thousands). 7. ZAKAT AND TAX TREATMENT The Fund is considered a part of Baitul Mal (public money) and it is not subject to zakat or tax.

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Islamic Solidarity Fund for Development (ISFD)

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