The funds will be allocated to renewable energy projects as part of a broad strategy to deepen its involvement in the region.
Islamic finance is growing in Africa as governments seek to develop large-scale infrastructure projects. Last year Nigeria’s Osun State began offering the country’s first Islamic bond.
(WATCH VIDEO: Progress of Islamic banking in Nigeria)
Saudi Arabia-based Islamic Development Bank (IDB) promotes economic development in its 56 countries through Shariah-compliant loans and grants. Nearly half of the bank’s member countries are in Africa which is home to hundreds of millions of Muslims.
The new 180 million dollar initiative, called Renewable Energy for Poverty Reduction, will target projects over the next three years to improve access to electricity in Africa’s rural areas where about 70 per cent of households lack power.
“This is just seed money. The goal is to enlarge it and to build a pipeline of projects,” Sidi Mohamned Ould Taleb, regional director for IDB, told Reuters on the sidelines of a conference in Dakar.
Around 125 million dollars has been committed by the bank and initial talks with potential partners such as the OPEC Fund for International Development have started to secure the rest.
“Other partners have expressed a readiness,” said IDB Vice President Ahmet Tiktik.
The initiative will focus on West Africa and projects in Burkina Faso have already been approved.
Projects such as mini-grids and rooftop solar systems for Mali, Senegal, Niger and Nigeria are likely to follow and a sixth African country not yet determined.
The initiative follows the launch of a new IDB energy sector policy called “Energy for Prosperity” which seeks to support sustainable energy solutions for the poor.
IDB began a Special Program for the Development in Africa in 2008 and is active in financing projects for health, education and infrastructure. It committed around 5 billion dollars in financing for sub-Saharan Africa between 2008 and 2012, or around 23 per cent of its budget.
Taleb said that IDB planned to increase that to around 33 per cent or around 7 billion dollars in the next five years.