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Brunei hope to cash in on Islamic finance

Written by David Pingree

The Islamic Development Bank announced Friday that it will launch its USD 2 billion IDB Infrastructure Fund II, which will finance key projects throughout the 57-member countries.

USD 750 million worth of commitments were financed by the founders of the IDB Fund I, the Kingdom of Saudi Arabia, the Kingdom of Bahrain and Brunei Darussalam for its first closing. Final closing figures from the other members of the IDB are expected some time early next year.

According to CPI Financial, the IDB Fund II will have a broader focus than its predecessor, the IDB Fund I, and will focus on energy, transportation and industrial sectors. Funds will also be allocated to health care, education and financial services.

ASMA Capital Partners B.S.C., a multi-fund asset management platform based in Bahrain, will manage the IDB Fund II. ASMA Capital will assist in managing pension plans and allocating capital for emerging markets based on stable returns, according to H.E. Mohammed Al-Kharashi, vice chairman of ASMA Capital.

The IDB Fund I was a major success story for the IDB, which almost tripled its authorized capital in 2012, Reuters reported. The fund achieved an IRR of 18% and averaged a 1.17 investment multiple throughout its various projects, which included AirAsia, Saudi International Petrochemical Company and AES Oasis LTD.

Hoping to cash in on the new investment strategy is the small island nation of Brunei, who is once again a founder and chief investor.

Earlier this month, Brunei dispatched a high-delegation team to Bahrain in an effort to learn from the industry’s leaders and visionaries, Gulf Daily News reported. The Minister of Development and Brunei Monetary Authority Deputy Chairman Suyoi Haji Osman led the delegation.

Brunei seeks to mimic the success of other countries that have profited from the Islamic finance boom. Maybank Islamic Bhd. and the World Islamic Economic Foundation, for example, significantly created more investment opportunities in Islamic finance between Malaysia, the United Kingdom and ASEAN.

The sultanate also plans to increase its Islamic finance and insurance sectors as part of a grand strategy to enforce Sharia law, Trade Arabia noted. Islamic finance accounted for 33% of the finance industry by the end of September 2013, according to an Autoriti Monetari Brunei Darussalam report. The government expects to reach 60% by the end of 2015.

Islamic insurance (Takaful) industry has seen its assets increase 21%, whereas conventional insurance has experienced a 1.3% decrease, according to the Brunei central bank’s report. However, industry officials have complained of a lack of promotion within the small kingdom.

Global Islamic finance is expected to grow at 20% over the next few years as Decision Insider reported in an earlier article, with current total global assets estimated at more than USD 2.1 trillion.

–Edited by Kristine Diaz

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