The Islamic Corporation for the Development of the Private Sector (ICD) is expanding its presence in former Soviet countries such as Azerbaijan and Uzbekistan, at the same time as many of these countries are developing domestic Islamic finance sectors. Khaled Al-Aboodi, chief executive officer of the ICD, outlines his organisation's mission and activities, and how it compares to other development institutions such as the IFC.
bne: What is the ICD's mandate?
Khaled Al-Aboodi: The mandate of the Islamic Corporation for the Development of the Private Sector (ICD) is to promote the economic development of its member countries in accordance with Sharia principles, through private sector development. Our vision is to become a premier Islamic multilateral financial institution for the development of the private sector. The ICD's mission is to complement the role played by the Islamic Development Bank (IDB) through the development and promotion of the private sector as a vehicle for economic growth and prosperity.
bne: When was the ICD set up?
KAA: The ICD is a multilateral organisation within the Islamic Development Bank Group. It was set up by the IDB and its member countries in November 1999. Shareholders include the IDB, 52 member countries and five public financial institutions.
The ICD encourages the establishment, expansion and modernisation of private enterprises through financing private sector enterprises and projects. The ICD also advises governments and private sector groups on enterprise policies, development of capital markets, best management practices and enhancing the role of market economy. Its operations complement the activities of the IDB.
bne: What resources does the ICD have?
KAA: The ICD has an authorised capital of $2bn with a paid-up capital of $771m. The ICD's capital is allocated as follows: 50% for the IDB, 30% for member countries and 20% for public financial institutions of member countries.
bne: Are there restrictions on where the ICD can invest?
KAA: ICD financing is available to each and every citizen from its member countries without any distinctions, provided the project is bankable and is majority private-sector owned. We are glad to serve all our member countries on an equal footing.
The ICD operates under Islamic financial principles, which tend to be a more socially responsible and ethical financial system. Islamic finance is simply a complementary way of providing investments and financing to the business community, as can be seen in Saudi Arabia or Malaysia where Islamic and conventional financial systems work in parallel without any conflict. The growing awareness and success of Islamic finance is demonstrated by London's aim to become the Islamic finance capital of Europe and by the keen interest expressed by other major OECD countries.
bne: What exactly is the relation between the Islamic Development Bank and the ICD?
KAA: The ICD is a fully autonomous entity and operates as the private sector arm of the IDB Group. The relationship between the ICD and the IDB is similar to that between the IFC and the World Bank. The ICD and the IFC have a fairly similar mandate, which is to further economic development of their member countries through financial support to the private sector. Both institutions are for-profit organisations working on a pure commercial basis, though with a strong development mandate. The major difference is that ICD operates under the principles of Islamic finance. One could be tempted to say that the ICD is the Islamic IFC.
bne: What is the ICD's interest in the countries of the former Soviet Union and Southeast Europe?
KAA: We are in the process of scaling up our activities in order to boost development in our member countries. We have launched several programmes such as the SME programme, the Special Economic Zone programme, and the Islamic Finance Institutions programme, which will have a multiplier effect on development. However, the ICD's activity is limited to its member countries. Within this region, most are in Central Asia - Kazakhstan, Azerbaijan, Uzbekistan, Kyrgyzstan and Tajikistan. We also manage a few projects on behalf of the IDB in some non-member countries in the region.
bne: Are there any any regions or countries in which you are especially active?
KAA: We are increasing our investments and financing in the CIS region. Currently the total portfolio stands at $227m, with a further $127.9m in the pipeline for signing in 2014. The ICD has been particularly active in Uzbekistan where it has extended three lines of financing totaling $133m to local banks for onward lending to SMEs [small and medium-sized enterprises]. Nine banks qualified for the funding and as of today $78m has been successfully used to finance a total of 145 SMEs in various sectors including agriculture, industry, healthcare and oil and gas.
The ICD is also active in Azerbaijan where it has established a leasing company and an investment company, in addition to extending lines of financing worth $77m to several local banks for SME funding. In line with our new investment strategy, we recently set up a leasing company in Kazakhstan, together with international and local investors; the company has a fully paid up capital of $28m. The ICD has also recently established a leasing company in Tajikistan together with some prominent local partners.
bne: Can you give me a couple of examples of your investments?
KAA: Food security is an issue of critical importance and is a key challenge in many member countries that are not producing sufficient food for their populations. Most of our members are net importers of food. The ICD has teamed up with Robeco to launch a $600m Food and Agriculture Business Fund that will invest not only into food production but across the whole value chain. Investments by the fund into new farming methods, production technology, logistics and food handling facilities will also ensure more efficient food production, better crop yields and crucially reduce wastage during transit.
Secondly, a loss of investor confidence in global markets has significantly dried up the flow of funds to the SME sector following the global financial crisis. I believe the health of the SME sector is crucial to every country in the world. This is the sector where most employment is created and new ideas are generated. To put it simply, SMEs are the engine of the economy. In several member countries, we are setting up funds under our SME Programme to support and improve SMEs' access to financing. One such fund, with a target size of 1 billion riyal ($267m) has already been launched in Saudi Arabia and several more are in the pipeline for 2014. I believe this type of fund will go a long way to support growth of the SME sector, generating many new jobs and helping to alleviate poverty in ICD member countries.
bne: Does the ICD have a special role to play in countries like Tajikistan, which are often overlooked by western investors and development banks?
KAA: Actually, China is Tajikistan's main trading partner and investor, accounting for more than 40% of all investments in the Tajik economy, followed by Russia. The ICD's total portfolio for the country currently stands at $13.5m; a $10m commercial real estate project is in the pipeline for signature in 2014. The ICD's portfolio comprises mainly of lines of financing facilities to local banks for onward lending to SMEs.
bne: What are the prospects for growth and investment in the countries in which you operate?
KAA: The ICD is currently implementing a new "Channel Strategy", which will have greater and more sustainable developmental impact, as well as generating substantial revenues for the corporation. The new strategy has four main pillars, one of which calls for the establishment of commercial banks, investment companies, leasing companies and Islamic insurance companies. As we roll out the implementation plan gradually over the next few years, the ICD will have a substantial portfolio of investments spanning across its 52 member countries. Africa holds tremendous growth potential. It's always an exciting experiment to break into new markets; each part of the world is different and has its own challenges.
bne: Islamic countries, in particular Arab countries, have been slow to invest in Central and Eastern Europe, but recently the pace has increased. What has changed?
KAA: I think the game-changing event that forced many Arab Sovereign Wealth Funds (SWFs) to take a closer look at their investment policies was the sub-prime crisis in the US and the ensuing global financial crisis. That caused a lot of damage to SWFs, whose mandate is actually wealth protection. What we are seeing now, with the worst of the financial crisis over, is a rebalancing of investment portfolios to diversify away from markets which were traditionally seen as less risky. With oil prices at $100 plus per barrel, substantial budget surpluses are being generated. We will see more diversification in SWFs' investment strategies in the future, as well as more investments in local and regional markets as the pressure from demographics, especially unemployment, bears down further on local governments.
bne: How do you see the relations between the Islamic world and former Soviet countries such as Russia and Azerbaijan developing?
KAA: Azerbaijan has strong historical ties with the Islamic world through its proximity to Turkey and Iran. Azerbaijan also has close ties with Russia given that it was part of the Soviet Union, as were five other Organisation of Islamic Conference (OIC) member states. The Russian Federation has a substantial Muslim population and Russia gained observer status in the OIC in 2005, which was also of strategic importance to forge mutually beneficial ties between Russia and the Islamic world. As this part of the world opens up further, I see relations between the Islamic world and both Russia and Azerbaijan getting stronger in the future... It's not a zero sum game!
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