The Islamic Development Bank (IsDB) raised €500 million through its latest Green Sukuk bond issue, seeing record demand from investors despite challenging market conditions, the bank reported. The five-year Islamic bond attracted over €2.6 billion in orders – more than five times the amount offered – making it the bank’s most oversubscribed deal ever. The AAA-rated institution completed the transaction under its enhanced 2025 Sustainable Finance Framework published in July. Seven major banks including Barclays, BNP Paribas, and HSBC managed the deal. The money will fund environmental projects in member countries, marking IsDB’s second Green Sukuk overall and first euro-denominated benchmark issue this year.
Islamic finance has been growing as an alternative to conventional bonds, particularly for institutions serving Muslim-majority countries. Sukuk certificates comply with Islamic law by avoiding interest payments and instead sharing profits from underlying assets. The IsDB’s triple-A rating from all major agencies makes its bonds attractive to conservative investors seeking high-quality paper. Green bonds have also gained popularity as investors look for projects that address climate change and environmental challenges. The combination of Islamic finance principles and environmental goals appeals to a broader range of institutional investors.
The bank’s enhanced framework introduces stricter rules for green project categories and adds new areas like climate adaptation and food security. S&P Global reviewed the framework independently and gave most project categories “Medium Green” and “Dark Green” ratings with no identified weaknesses. IsDB Vice President Zamir Iqbal said the framework “reflects the Bank’s commitment to further scale up sustainable development in our Member Countries.” The bank spent weeks meeting with European investors before launching the deal, focusing particularly on ESG-dedicated funds.
Investor demand came from across different regions and institution types. European buyers took 53% of the bonds, followed by Middle East and North Africa investors at 27%. Central banks and official institutions bought 42% of the issue, while asset managers took 30% and insurance companies 22%. Many first-time Sukuk buyers participated, showing growing acceptance of Islamic finance instruments in European markets. The final interest rate came in at 2.793%, three basis points tighter than initial guidance thanks to strong demand.
The successful deal completes IsDB’s 2025 funding program after raising about $3.5 billion in two earlier dollar-denominated transactions this year. Bank officials said they expect to return to euro markets next year, building on relationships established with this transaction. The record orderbook demonstrates appetite for high-quality development finance bonds even amid volatile market conditions. For development banks, strong investor demand helps keep borrowing costs low, allowing more money to flow toward projects in member countries.
