In addition to its own Shariah compliant project and trade financing operations, IDB has been instrumental in setting up a number of institutions to support the required infrastructure in Islamic banking. These institutions are: Auditing and Accounting Organization for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB), International Islamic Financial Market (IIFM), Liquidity Management Centre (LMC), International Islamic Rating Agency (IIRA), General Council of Islamic Banks and Financial Institutions (GCIBFI), Shariah Boards of various institutions and the International Islamic Centre for Reconciliation and Commercial Arbitration, which was recently established in 2003 in Dubai, U.A.E.

IDB¡¯s involvement in the institutions is important considering that at present, the Islamic financial service institutions (IFSI) comprises over 300 financial entities, which manage assets worth over US$ 250 billion. The institutional structure of IFSI has evolved to reach a stage where it can legitimately claim a niche segment in the global financial market. IFSI refers to the combination of the institutional structures, financial intermediation and market related activities.

Some of the important IFSI market segments are composed of the following: Asset management institutions, including investment banks, mutual funds, and brokerage houses; deposit taking institutions including fully-fledged Islamic banks and Islamic windows of traditional banks; financial markets, including money market, and e-business; specialized and structured finance providers including takaful (insurance) institutions, venture capital, housing mortgages and infrastructure finance; regulatory supervisors, licensing authorities, legal institutions and framework; Shariah governance institutions, risk management, transparency, disclosures and standard setters, and rating institutions; research and training entities, financial statistics and information providers. 

To embed itself in the global financial market place, the IFSI need to be cognizant of a number of intertwined challenges at the global and national levels. The intertwined nature of such challenges emanate from the fast pace of market developments and the changes in the regulatory regime. 

The IFSI need to respond to issues of maintaining competitiveness accompanied by adequate risk management framework, ability to deal with macroeconomic instability and evolving financial market reforms, striving towards meeting the best practices in financial reporting, seeking strategic alliances with conventional financial services providers or attempting to achieve size consolidation by way of market driven mergers, activating strategic business planning, and a dynamic product development programme in line with changing market requirements and national needs. 

The role of the IDB in assisting to address the above mentioned intertwined challenges, which ultimately became an example of how fledging Islamic banks can successfully rehabilitate and achieve a business turnaround in a highly competitive banking environment. 

During the last three years, the IFSI effectively addressed the intertwined challenges of resource mobilization characterized by market driven pricing and medium-term tenor. The Shariah compatible instrument which gained enormous popularity is called Sukuk. These Sukuk are based on Salam, Ijara, Istisna¡¯a, Istisna¡¯a-cum-Ijara mode of finance and on the basis of pooled portfolios. 

The surge in Sukuk issuance by sovereign borrowers and corporate entities has mainly resulted from the Shariah standardization of the model agreement. The Accounting and Auditing Organization for the Islamic Financial Institutions (AAOIFI), during Ramadan 1423H, adopted an Exposure Draft of Shariah Standards concerning Investment Sukuk.