ISLAMABAD, May 23: The Asian Development Bank has announced participation in its first Shariah-compliant project financing by providing assistance to two projects to build wind farms near Karachi, using two partial credit guarantees worth up to $66 million to the Islamic Development Bank.

IDB will use the assistance to finance two projects that will each produce 50MW of much-needed additional power for Pakistan and lower reliance on fossil fuels.

The wind farms will avoid greenhouse gas emissions equivalent to 136,000 tons of carbon dioxide per year.

The Fauji Foundation, which owns majority stakes in the two projects, had requested that all financing be obtained in compliance with Shari’ah principles, so ADB used an innovative structure in which it provided a partial credit guarantee to half of the IDB financing, which is in the form of an Ijarah, akin to lease financing.

The remainder of the financing is provided by a consortium of Pakistani banks using a Musharaka, a partnership structure with profit-sharing elements that is used in Islamic finance.

The structure allowed the projects to raise their entire financing on a Shari’ah-compliant basis.

“This transaction allows ADB to be more responsive to borrower demand and provides an opportunity to participate in the fast-growing Islamic finance market,” said Siddhartha Shah, Senior Investment Specialist at ADB Private Sector Operations Department.

The projects will also create local employment in southern Sindh, one of the poorest regions in Pakistan.

With an estimated 50,000MW of wind capacity available in the south of the country alone, the government is now engaged in a major drive to tap its wind resources.