China-led AIIB studying use of Islamic financing

The Islamic Development Bank (IDB) is in discussions with Chinese officials to study the use of Islamic financing in the planned Asian Infrastructure Investment Bank (AIIB), the head of the Jeddah-based lender said.

The move could spur the use of sukuk (Islamic bonds), which have gained prominence as funding tools for a range of countries in recent years, and among multilateral lenders to help fund some of Asia's mounting infrastructure needs.

A potential link-up between the IDB and AIIB, which have 20 member countries in common, would open a growing pool of capital in the hands of private-sector Islamic investors in the Middle East and Southeast Asia.

"Our delegation has visited Chinese counterparts and we expect them to visit us soon," IDB president Ahmad Mohamed Ali said. "We are ready to collaborate with the AIIB on this project and also to help them develop expertise in Islamic financing."

Most analysts believe the AIIB will have to work with established institutions for some of its initial investments, as it takes time to develop its own pipeline of deals.

Developing countries spend about US$1 trillion a year on infrastructure and an additional US$1 trillion to US$1.5 trillion will be needed through 2020 in areas such as water, power and transport projects, according to the World Bank.