Islamic Development Bank seeks tie-ups for infrastructure investments

Islamic Development Bank exploring joint opportunities with other multilateral development banks to invest in India’s infrastructure sector

Tue, Jun 26 2018

Utpal Bhaskar

Mumbai: Islamic Development Bank Group, one of the largest lenders to Muslim countries, is interested in exploring joint opportunities with other multilateral development banks to invest in India’s infrastructure sector, said Islamic Development Bank president Bandar M.H. Hajjar.

The development is significant given India’s infrastructure requirements and the need to access capital at competitive rates. Infrastructure development has been one of the focus areas of the Narendra Modi government. Starting with an allocation of around ₹1.81 trillion in 2014-15, expenditure towards infrastructure reached ₹4.94 trillion in 2017-18. India plans to invest as much as ₹5.97 trillion in creating and upgrading infrastructure in the current financial year.

Hajjar said the Jeddah-based bank is exploring joint opportunities through a line of guarantees and pooled and blended financing.

With 57 member countries, Islamic Development Bank has financed $130.8 billion since inception. According to information available on its website, the top five beneficiaries are Bangladesh (14.9%), Pakistan (8.9%), Egypt (8.8%), Turkey (8.3%) and Morocco (5%).

India has been seeking Saudi investment in its infrastructure sector. Mint reported on 14 June that the Public Investment Fund (PIF) of Saudi Arabia, which has invested in SoftBank’s Vision Fund and ride-hailing firm Uber, is looking to invest in India. Also, the world’s biggest oil producer, Saudi Arabian Oil Co., or Saudi Aramco, has partnered with a consortium of Indian state-run companies to set up the largest global refinery and petrochemical complex by capacity at Ratnagiri in Maharashtra at an investment of $44 billion. Saudi Arabia is a crucial source of energy for India and hosts a number of expatriate Indians.

India needs infrastructure investments, with the National Democratic Alliance (NDA) government setting in play a new integrated infrastructure programme that involves building of roads, railways, waterways and airports.

Seized of the task at hand, India has sought project financing totalling $2.4 billion from the Asian Infrastructure Investment Bank (AIIB). Also, the Beijing-headquartered bank will invest $200 million in India’s National Investment and Infrastructure Fund (NIIF).

“With AIIB’s investment in the NIIF, we will help pool commitments from long-term investors such as multilateral institutions, sovereign wealth funds, pension funds and insurance companies—within and outside India—to make investments in the country’s infrastructure sector,” said AIIB director general of investment operations Dong-Ik Lee.

India requires around “$1.5 trillion in investment over the next 10 years to bridge the infrastructure deficit that exists in the country”, according to AIIB. Given the financing constraints, the numbers seem daunting. According to the Economic Survey presented in January, India will face a $526 billion infrastructure investment gap by 2040.

The NDA government is confident of attracting investments as was articulated by finance minister Piyush Goyal.

During a panel discussion at the third annual general meeting of the board of governors of AIIB in Mumbai on Monday, Goyal said India would not have a problem attracting finance.

“Finance will not be a deterrence to create the infrastructure that India requires,” said Goyal, also the railway and coal minister.

Goyal said India would require $4.5 trillion investments in infrastructure over the next 10 years and cautioned that there may be challenges such as cost of finance and capacity building.

India has ambitious plans around Sagarmala and Bharatmala schemes to improve its transport infrastructure. While the total investment for the Bharatmala road project was pegged at ₹10 trillion—the largest ever outlay for a government road construction scheme—the country has envisaged ₹8 trillion of investment until 2035 under the Sagarmala port programme.

In a related development, AIIB and Islamic Development Bank on Monday signed a memorandum of understanding to “establish a framework for strategic cooperation, including actively seeking to co-finance projects in common areas of operations”.

“We have a number of common member countries in Asia and also in Africa and a significant overlap in sectors and financing activities... We strongly believe in the power of innovation, science and technology to stimulate growth and will ensure this is a key area of collaboration for the banks going forward,” Hajjar said.